Understanding GST/HST and the “Place of Supply” Rules for Canadian Entrepreneurs 0

Posted On November 9, 2023, by Ann-Marie Powell

Whether you are just starting out or have been in business for years, knowing how much Goods and Services (GST)/Harmonized Sales Tax (HST) to charge your customers can be challenging. For Canadian entrepreneurs that produce and sell their products or services in Canada, one of the key aspects to get a firm grasp on is the “place of supply” rules. Let us break these down to make them more digestible.

1. What are GST and HST?

GST is a federal value-added tax of 5% levied on the supply of most goods and services in Canada. In some provinces, the GST is combined with the provincial sales tax to form the HST (13%-15%). This means that while businesses in some provinces only collect the GST, others collect the HST. Understanding where and how to apply these taxes is crucial for businesses.

2. The Importance of “Place of Supply”

Assuming you are a Canadian company, which is both making and selling your products and/or services in Canada, the “place of supply” determines where the tax should be applied. This is essential for businesses that operate in multiple provinces. Correctly identifying the place of supply ensures that businesses charge the right amount of GST/HST on their goods and services.

3. General Place of Supply Rules for Goods:

• For goods shipped, the place of supply is where the goods are delivered.
• For goods picked up, the place of supply is where the goods are picked up.
  

4. General Place of Supply Rules for Services:

Services, in the context of this article, refers to those such as Advisory, Consulting or Professional Services.

• Where businesses obtain their clients’ address in the normal course of business, they are aware of and therefore should be charging the GST/HST rate that corresponds with where there services are being supplied. For example, accounting services purchased by a customer in Nova Scotia would attract HST at the Nova Scotia rate, even if the accounting firm providing those services is based in Alberta.
• In the less typical case where businesses do not attain their clients’ address in the normal course of business, the rate of GST/HST would be based on where the service is primarily performed.
• For personal services, which are usually performed in the presence of the individual, the place of supply is generally where the service is performed. However, if you operate in this sector, we recommend consulting with an accounting professional to ensure this is applicable to your business.
• For other specific services (Transportation, Intangible Personal Property and many more), it is crucial to seek the advice of an accounting professional as there are many details to consider.

4. The Role of Provincial Rates:

Remember, HST rates vary by province. Ensure you are charging the correct rate based on the place of supply, given the considerations above. For instance, if you are in a GST-only province (5%) but supply to an HST province (13%-15%), you’d need to collect the HST rate of the recipient’s province.

It is also worth noting that Manitoba, Quebec, Saskatchewan and BC have their own rates of provincial sales tax (PST) or retail sales tax (RST) in addition to GST. More on this topic to come in a future blog.

The “place of supply” rules are integral for Canadian business owners to ensure they are compliant with tax regulations and are charging customers the correct amount of GST/HST. Given the complexities, it is beneficial to consult with a knowledgeable CPA who can guide your business through these rules and ensure you remain compliant. Stay informed and always seek expert advice when in doubt.

Disclaimer: This blog post is intended for general informational purposes only and does not constitute financial advice. Always consult with a financial advisor or your bank before making any decisions.

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This blog is not meant to provide specific advice or opinions regarding the topic(s) discussed above. Should you have a question about your specific situation, please discuss it with your GBA advisor.

GBA LLP is a full-service accounting firm in the Greater Toronto Area, but we primarily service all of Ontario as well as the rest of Canada virtually, except Quebec. Our team of over 30, provides Audits and Reviews of financial statements, and Compilations of financial information, as well as corporate tax returns.  We provide specialized corporate tax and succession planning for small and medium businesses, in addition to general advisory services.

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