Canada: Finance And CRA Clarify Place Of Supply Rules For HST Purposes

Ontario will be harmonizing its provincial retail sales tax with the federal goods and services tax as of July 1, 2010. On February 25, 2010, the Department of Finance issued a news release announcing a number of changes to the place of supply, the self-assessment and the rebate rules relating to the provincial component of the HST. The news release was immediately followed by a Technical Information Bulletin on the same issue by the Canada Revenue Agency.

The general thrust of the new rules is to focus more on the province of residence of a purchaser and less on the place of negotiation of a supply. Factors like the address of a purchaser will now form an important element of the place of supply rules for HST purposes. The proposals discussed in the two releases are extensive and supported by a number of examples in each instance. It should be noted that these proposals apply for GST/HST purposes in general and not just to Ontario.

This Tax News Flash highlights the proposals and refers to the various applications discussed. The new rules focus mostly on supplies of services and intangible personal property.

Application

The new place of supply rules will generally apply to taxable supplies made on or after May 1, 2010, and to supplies made before May 1, 2010, if the consideration for the supply has not become due, and has not been paid, before May 1, 2010.

Intangible Personal Property

1. General Rule

The general place of supply rules with respect to intangible personal property are based on where the property is primarily used.

 

Used Primarily in Identifiable Participating Province

Used Primarily in Non-Identifiable Participating Province

Used Primarily Outside Participating Province

Used Other than Only Primarily in Participating Province and Used Other than Only Primarily Outside Participating Province

Supply made in participating province if equal or greater proportion of Canadian rights cannot be used in another participating province.

Rule 1 –for consideration valued at no more than $300, supply is made in a participating province if made through permanent establishment of supplier in the province in the presence of consumer or agent or through vending machine situated in province, and property can be used in the province.

Rule 2 – If Rule 1 is not applicable, supply is deemed to be made in a participating province if supplier acquires address of recipient in the province.

Rule 3 – If Rules 1 and 2 are not applicable, supply made in the province with the highest HST rate of the participating provinces in which property can be used.

Supply considered to be made in non-participating province.

Rule 1 –for consideration valued at no more than $300, supply is made in a province if made through permanent establishment of supplier in the province in the presence of consumer or agent or through vending machine situated in province, and property can be used in the province.

Rule 2 – If Rule 1 is not applicable, supply deemed to be made in a province if supplier acquires address of recipient in the province.

Rule 3 – If Rules 1 and 2 are not applicable, supply made in the province with the highest HST rate of the provinces in which property can be used.

2. Specific Applications

The examples contained in the proposals discuss the application of the rules with respect to various types of intangible personal property. Some relevant applications in this context are as follows:

a) Intangible Personal Property Relating to Tangible Personal Property or Real Property

A supply of intangible personal property that relates to tangible personal property or real property that is ordinarily located in Canada is made in a participating province if the tangible personal property or real property, as the case may be, to which the property relates is ordinarily located primarily in the participating province and the greatest proportion of the tangible personal property or real property is ordinarily located in that province.

b) Intangible Personal Property Relating to Services

A supply of intangible personal property that relates to services to be performed is made in a participating province if, at the time the supply is made, the supplier can determine that the service would be supplied in a single province if supplies of those services were made based on the relevant place of supply rule for those services.

Services

1. General Rule

The general place of supply rules for services are similar to the general rules for intangible personal property discussed above. There are four rules that are applicable:

Rule 1

Rule 2

Rule 3

Rule 4

Supply of a service is deemed to be made in a province if, in the normal course of business, the supplier obtains an address of the recipient located in a province that is the recipient's home or business address, or the supplier obtains any other address of the recipient that is located in the province and is most closely connected with the supply.

If Rule 1 does not apply and the Canadian element of the service is performed primarily in the participating provinces, the supply will be deemed to be made in the participating province in which the greatest proportion of the Canadian element of the service is performed.

If the service is performed equally in two or more participating provinces, the service is deemed to be supplied in the province with the highest rate of the provincial component of the HST.

If Rule 1 does not apply and the Canadian element of the service is performed otherwise than primarily in the participating provinces, the supply is considered to be made in a non-participating province.

2. Specific Applications

A number of specific applications have been provided for. The most important few are as follows:

a) Personal Services

A supply of a service that is all or substantially all performed in the presence of the individual to whom it is rendered, and the Canadian element of which is performed primarily in the participating provinces, will be considered to be made in the participating province in which the greatest proportion of the service is performed. If the service is performed equally in two or more participating provinces, the supply will be considered to be made in the participating province with the highest rate of the provincial component of the HST. But, if the Canadian element of the service is performed otherwise than primarily in the participating provinces, the supply will be considered to be made in a non-participating province.

b) Service in Relation to Tangible Personal Property

A supply of a service in relation to tangible personal property that is situated in one or more provinces when the Canadian element of the service begins to be performed, and that remains situated in that province while the Canadian element of the service is performed, will be considered to be made in a participating province if the tangible personal property is situated primarily in the participating province where the Canadian element of the service is performed.

However, if the tangible personal property does not remain situated in a particular province while the Canadian element of the service is performed, the service will be considered to be made in that participating province if (a) the property is situated primarily in that participating province at any time the Canadian element of the service is performed, (b) the service is performed primarily in participating provinces, and (c) the greatest proportion of the performance of the service that is performed in the participating provinces is performed in that particular participating province.

c) Service in Relation to Real Property

A supply of services in relation to real property will be considered as having been made in a participating province if the greatest proportion of the real property is situated primarily in that province. If a single participating province cannot be determined, the supply will be considered to be made in the province with the highest rate of the provincial component of the HST.

Rebates

Special rebate mechanisms have been provided for situations where property or services acquired in a participating province are removed to a non-participating province. A non-registrant may apply for a rebate of all or part of the provincial component of the HST or for the difference in the rate when removing tangible personal property from a participating province to a non-participating province, or from a participating province with a higher HST rate to a participating province with a lower HST rate. Similarly, a non-registrant may apply for a rebate of all or part of the provincial component of the HST for services and intangible personal property made in a participating province where the property or services were acquired for use or supply significantly (generally, 10% or more) in a non-participating province or a participating province with a lower HST rate.

Self-Assessment

A taxpayer may be required to self-assess the provincial component of the HST when it acquires a property or service in a non-participating province but consumption, use or a subsequent supply of the property or service will occur in a participating province (the consumption, use or supply must be significant (meaning 10% or more) for services and intangible personal property). The rule will also apply if the property or service is acquired in a participating province with a lower HST rate and brought into a participating province with a higher HST rate, except that the self-assessment requirement will only apply to the difference in the rates of tax in this instance.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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