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Proposed harmonized sales tax place of supply rules released


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Canadian Indirect Tax News, March 12, 2010 (10-3)

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On Thursday February 25, 2010, the Department of Finance (Finance) released the proposed place of supply rules for the harmonized sales tax (HST) that will affect taxable supplies considered to be made in the current harmonized provinces of New Brunswick, Nova Scotia, Newfoundland, and Labrador and also in the soon to be harmonized provinces of British Columbia and Ontario.

One day later, on Friday February 26, 2010, the Canada Revenue Agency (CRA) published GST/HST Technical Information Bulletin (TIB) B-103, Harmonized sales tax - Place of supply rules for determining whether a supply is made in a province. This bulletin provides the CRA’s interpretation of Finance’s proposed rules.

What has changed?

Significant changes have been proposed to the current place of supply rules related to services and intangible personal property (IPP). There is also proposed expansion of the self-assessment and rebate provisions (for the provincial component of the HST) and certain clarifying amendments.

IPP

The general place of supply rules for IPP are, for the most part, dependent on where the IPP can be used. Greater emphasis is also placed on the location of the recipient of the supply in determining where the supply is made; and the place of negotiation criterion has been eliminated as a determining factor. For IPP that can only be used primarily (>50%) in one province, the GST or HST rate applicable to that province will apply. For IPP that can only be used primarily in the HST provinces, certain criteria will apply to determine the applicable rate of HST; and for IPP that can be used anywhere in Canada, different criteria will apply. These rules are best demonstrated by the following flowchart, which can help determine whether GST (at 5%) or HST (at 12% or 13%) could apply. Please note that supplies of IPP related to real property, tangible personal property (TPP), or services do not follow the general rules depicted below and are discussed later in this bulletin.

IPP

Services

The general place of supply rules for services put greater emphasis on the location of the recipient, and as is the case with the general rules for IPP, the place of negotiation criterion has been eliminated as a determining factor. The general rules are outlined in the following flowchart, which can help determine whether GST (at 5%) or HST (at 12% or 13%) could apply. Please note that the general rules for services as depicted below do not apply where there is an exception, and these exceptions are discussed later in this bulletin.

Taxable services

Exceptions to the general rules for services and IPP

The following table highlights the exceptions to the general place of supply rules for services and IPP. In many cases, these exceptions relate to where the service or IPP is clearly received or used. Specific rules apply and must be consulted where the service or IPP typically spans more than one province.

Proposed changes to HST place of supply rules

Type of supply General rule and notes

Personal services

(a service that is all or substantially all (90% or more) performed in the physical presence of the individual to whom it is rendered, not including an advisory, professional, or consulting service)
  • Supplied in the province where the greatest proportion of the service is performed

 

 

Services and IPP in relation to real property

 
  • Supplied in the province in which the real property is situated

Services in relation to TPP

 

 

 

 
  • Supplied in the province where the greatest proportion of the TPP is situated (where the TPP remains in one province); or
  • If the TPP does not remain in one province, the service is supplied in the province in which the greatest proportion of the service is performed
Services in relation to a location-specific event (such as a performance, festival, conference, convention, etc.)
  • Supplied in the province in which the event takes place
Service supplied in connection with criminal, civil, or administrative litigation
  • Supplied in the province in which litigation takes place

Passenger transportation services

 
  • Supplied in the province in which the journey originates

Services and TPP supplied on board a conveyance during passenger transportation services

 
  • Supplied in the province in which that leg of the journey begins (providing the leg ends in Canada)

Customs brokerage services

 

 

 

 

 
  • No change where service is in respect of commercial goods
  • Where service is in respect of non-commercial goods, if the provincial component of HST for a participating province is imposed in respect of the goods, the supply of the customs brokerage service will be regarded as made in that same participating province

IPP that relates to services to be performed

 

 

 
  • If services are to be performed in a single province (based on the relevant rules for those services), the supply of IPP will be made in the same province
  • If the above rule does not apply, the general rules for IPP apply

IPP that relates to TPP

 
  • Supplied in the province in which the TPP is ordinarily located
Memberships
  • Current rule for memberships is proposed to be repealed as a result of the above changes

No proposed changes

There are a number of areas where there are no proposed changes to the current HST place of supply rules. For example, there are no changes to the rules relating to TPP and real property. For TPP supplied by way of sale, the rules continue to be based on where the TPP is delivered, and for TPP supplied otherwise than by way of sale, the rules continue to vary based on the length of the rental/lease. The rules for real property continue to be based on where the real property is situated. Other place of supply rules for services that also remain unchanged include freight transportation, postage and mail delivery, and telecommunication services.

Furthermore, clarifications were announced regarding the place of supply rules for:

  • repairs, maintenance, cleaning, alterations and other services relating to goods;
  • services of a trustee in respect of a trust governed by an RRSP, RRIF or RESP;
  • premium telephone services;
  • computer-related services and internet access; and
  • air navigation services.

Expanded self-assessment and rebate provisions also proposed

Finance has also proposed an expansion of the self-assessment and rebate provisions (with respect to the provincial component of the HST), which are documented in the following two tables:

Proposed self-assessment of the provincial component of the HST

Type of Supply Notes

TPP brought into a participating province

 

 

 

 
  • Current rule expanded to require self-assessment on TPP brought into a participating province from another participating province for which the provincial component of HST is lower
  • Relief from the above is proposed where the amount of tax is less than $25 in a calendar month

Services and IPP supplied in a province for consumption, use or supply in a participating province

 

 

 
  • Current rule expanded to require self-assessment where services or IPP that are acquired in a province, for consumption, use or supply significantly (generally 10 % or more) in a participating province for which the provincial component of HST is higher than the provincial component of the HST in the province of acquisition

Imported taxable supplies

 

 
  • Current rule expanded to require self-assessment where IPP or a service is acquired outside of Canada, for consumption, use or supply significantly in a participating province

 

Proposed rebates of the provincial component of the HST

Type of Supply Notes

TPP removed from a participating province

 

 

 

 

 

 

 

 

 
  • Current rule expanded to allow for a rebate of all or a portion of the provincial component of HST in respect of TPP that is supplied in one participating province and is subsequently removed from that province to a non-participating province or a participating province for which the provincial component of HST is lower
  • The amount of the rebate would be the difference between the provincial component of the HST paid and the provincial component of the HST that would have been payable had the supply been made in the province to which the TPP is moved

Services and IPP supplied in a participating province for consumption, use, or supply elsewhere

 

 

 

 

 

 

 

 

 

 
  • Current rule expanded to allow for a rebate of all or a portion of the provincial component of HST in respect of services or IPP that are supplied in one participating province for consumption, use, or supply significantly in another province, where the provincial component of the HST is lower than the provincial component of the HST in the province in which such supplies were acquired
  • The amount of the rebate would be the difference between the provincial component of the HST paid and the provincial component of the HST that would have been payable had the supply been made in the province in which the service or IPP was actually consumed, used or resupplied

Importation of non-commercial goods

 

 

 

 

 

 

 

 

 

 
  • Current rule expanded to allow for a rebate of all or a portion of the provincial component of HST paid on goods that are imported by a resident of a participating province at a place outside of the participating province but that are for consumption or use exclusively in another province for which the provincial component of the HST is lower than the provincial component of the HST that was paid
  • The amount of the rebate would be the difference between the provincial component of the HST paid and the provincial component of the HST that would have been payable had the goods been supplied in the province where the goods are to be consumed or used

 

The proposed changes to the place of supply rules would apply to supplies made on or after May 1, 2010 as well as supplies made after February 25, 2010 (the “announcement date”) and before May 1, 2010 if the consideration has not become due and has not been paid before May 1, 2010.

Any comments on the proposed place of supply rules can be provided to Finance by March 31, 2010.

Deloitte can assist with preparing and planning for the place of supply rules or any other aspect of HST preparation and implementation.

The Finance release is available at: http://www.fin.gc.ca/n10/10-014-eng.asp. The CRA TIB B-103 and related publications are available at: http://www.cra-arc.gc.ca/E/pub/gm/b-103/README.html.

 

 

This publication is produced by Deloitte & Touche LLP as an information service to clients and friends of the firm, and is not intended to substitute for competent professional advice. No action should be initiated without consulting your professional advisors. Your use of this document is at your own risk.