Canada: Exports Receive Favorable GST/HST Treatment

Last Updated: June 15 2017

Introduction

Exports receive favorable GST/HST treatment under the Canadian Excise Tax Act. In this context, favorable tax treatment means no obligation to collect and remit GST/HST on the export of goods and services while still being able to claim input tax credits. GST/HST is charged on taxable supplies made in Canada. A taxable supply is any good or service you normally sell to anyone else for business purposes, in other words to generate revenues or sales. The supplier is responsible for collecting the tax from the person acquiring the supply. Suppliers are then required to remit the tax they collected to the Canada Revenue Agency (CRA). GST/HST is a value added tax, so the Excise Tax Act is set up so that each supplier ends up remitting only the value they add to the product or service supplied. This is implemented through the input tax credit system. Suppliers who register to collect GST/HST are entitled to reduce the amount of GST/HST they remit to CRA by the amount of the GST/HST that they paid for goods and services they purchased to undertake their commercial activities. Our Canadian GST/HST lawyers can help you determine if your business are eligible for favorable GST/HST tax treatment.

Zero Rated Supplies

Not all taxable supplies are equal for GST/HST under the Canadian Excise Tax Act. Certain taxable supplies, including some types of exports, qualify as zero-rated supplies, which do not require the supplier to collect and remit GST/HST. Despite not collecting GST/HST from the taxable supply, the supplier can still claim input tax credits for goods and services purchased for the commercial activity that lead to the zero-rated supply. This is unlike the treatment of exempt supplies under the Canadian Excise Tax Act. Exempt suppliers do not need to collect and remit GST/HST, but are not able to claim input tax credits. Input tax credits are refundable, so businesses that supply primarily zero-rated goods and services can end up receiving a net refund from CRA.

Supplies Made Outside of Canada

Some exports, including tangible personal property to be delivered outside of Canada, receive favorable tax treatment because they are considered to be taxable supplies made outside of Canada under the Canadian Excise Tax Act. When a taxable supply is made outside of Canada, no GST/HST becomes payable, so no need to collect and remit arises. The ability to claim input tax credits for the GST/HST paid on purchases of goods or services for commercial activities is not impacted by the fact that a business is making supplies outside of Canada. This means that supplies made outside of Canada are treated very similarly to zero-rated supplies by the Canadian Excise Tax Act. If you need help determining whether a transaction qualifies as a supply made outside of Canada, contact one of our expert Canadian GST/HST lawyers.

Effect on Reporting Period

The distinction between zero-rated supplies and supplies made outside of Canada can have an effect on what your GST/HST reporting period is. GST/HST registrants can report to CRA either on a monthly, quarterly, or annual basis. Your ability to pick your reporting period is based on a threshold amount based on the total consideration for taxable supplies made in Canada. This means that the threshold amount includes zero-rated supplies made in Canada but not supplies made outside of Canada. Registrant’s with a sufficiently high threshold amount will be forced to have a quarterly or monthly reporting period. For more information about how this distinction may affect your choice of reporting period, please contact one of our top Canadian GST/HST tax lawyers.

Input Tax Credits

Input tax credits can be claimed by a person if they paid GST/HST on a purchase of a supply of a good or service for the purposes of commercial activity during a reporting period in which the person is a GST/HST registrant. The credit is normally for the full amount of GST/HST paid on the supply. As discussed above, exporters can still claim input tax credits despite not being required to collect GST/HST on exports. Most registrant’s are required to file a GST/HST return 30 days after the end of their reporting period. On that return they calculate their net tax owing by adding up all the GST/HST they collected during the reporting period and subtracting all of the input tax credits they accumulated during the reporting period. If that amount is positive the registrant must pay that amount to the CRA within 30 days of the reporting period. If the amount is negative, the CRA will provide a refund after you file your return. It is important to note that taxpayers who receive refunds will inevitably be audited by the CRA. If you intend to claim input tax credits it is very important to document your purchases properly. The Canadian Excise Tax Act and the Input Tax Credit (GST/HST) Regulations require specific forms of supporting documentation to be kept in order for input tax credits to be claimed. Our Canadian GST/HST lawyers are very experienced at representing tax payer’s who have had their input tax credit claims denied by CRA. We recently secured a refund of over $800,000 for a GST/HST registrant who was improperly denied input tax credits by CRA.Read Case Study.

Conclusion

Exporters receive favorable tax treatment under the Canadian Excise Tax Act because exports are treated as either zero-rated or supplies made outside of Canada. This means that the exporter does not need to collect and remit GST/HST on their exports, but is still able to claim input tax credits. If an exporter’s net tax under the Canadian Excise Tax Act is negative at the end of their reporting period, they will get a refund from CRA. Taxpayers who receive refunds will be audited. If you intend to claim input tax credits, make sure to keep the correct supporting documentation. If you have further questions about the GST/HST treatment of exports don’t hesitate to contact one of our experienced Canadian GST/HST lawyers.

The information is thought to be current to date of posting. Income tax law changes frequently and content may no longer reflect the current state of the law. This document is not intended to create an attorney-client relationship. You should not act or rely on any information in this document without first seeking legal advice. This material is intended for general information purposes only and does not constitute legal advice. If you have any specific questions on any legal matter, you should consult a professional legal services provider.

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