Resources

Related expertise

Tax & Trusts

Tax & Trusts

Harmonized Sales Tax: Amendment to the Place of Supply Rules

Published: 04/22/2010

By Michael Platt

The "place of supply rules" determine whether a supplier has made a supply of goods or services in a "participating province"¹ or in a non-participating province. Under the place of supply rules, where a supplier is deemed to have made a supply of goods or services in a participating provice, the supplier is generally required to collect and remit the HST (i.e. both provincial and federal components) rather than only the GST.

On February 25, 2010, the Department of Finance announced proposed changes to the HST place of supply rules² (the "Proposed Rules"). The Proposed Rules apply to any supply made on or after May 1, 2010, and to any supply made after February 25, 2010 and before May 1, 2010 if the consideration for the supply has not become due, and has not been paid, before May 1, 2010.

The Proposed Rules are particularly important for businesses that supply services or intangible personal property (e.g. patents, trade-marks, intellectual property, licenses, etc.).

Under the Proposed Rules, when determining where a supply of service or intangible personal property is made, greater emphasis will be placed on the location of the recipient of the supply rather than the location of the supplier. In addition, under the Proposed Rules, the place of negotiation has been eliminated as a criterion.

SERVICES

General Rules for the Supply of Services

Rule 1:
Where a supplier obtains a Canadian address of a recipient:

The supply will be regarded as made in the province in which the particular address is situated.

Rule 2:
Where a supplier does not obtain a Canadian address of a recipient (e.g. the recipient does not reside in Canada) and services are primarily performed in participating provinces:

The supply will be regarded as made in the participating province for which the greatest proportion of service is performed.

Rule 3:
Where Rule 2 applies and the service is performed equally in two participating provinces:

The supply will be regarded as made in the participating province for which the rate of the provincial component of the HST is the highest at the time the supply is made.

Rule 4:
Where Rule 3 applies but the provincial component of the HST is the same in two or more participating provinces:

The supplier will be required to charge that particular rate.

Rule 5:
Where a supplier does not receive a Canadian address of a recipient and the services are not primarily performed in a participating province:

The supply will be regarded as made in a non-participating province

Exceptions to the General Rules

Under the Proposed Rules, the general rules will not apply to all services. Specific place of supply rules will apply to each of the following services:

Personal Services
Services in Relation to Real Property
Services in Relation to Tangible Personal Property
Services Rendered in Connection with Litigation
Services Supplied on Board Conveyances
Customs Brokerage Services
Repairs, Maintenance, Cleaning, Alterations and other Services Relating to Goods
Services of a Trustee in respect of a Trust Governed by a Registered Retirement Savings Plan, Registered Retired Income Fund or Registered Education Savings Plan
Premium Rate Telephone Services
Computer-Related Services and Internet Access
Air Navigation Services

INTANGIBLE PERSONAL PROPERTY (“IPP”)

General Rules for the Supply of IPP

Rule 1:
If the "Canadian rights,"³ in respect of IPP, can only be used in a single participating province:

The supply will be regarded as made in that participating province.

Rule 2:
If the Canadian rights, in respect of IPP, can be used in more than one participating province:

The supply will be regarded as made in the province with the greatest proportion of use; or
If (i) is not applicable, the supply will be regarded as made where the address of the recipient is situated; or
If (i) and (ii) are not applicable, the supply will be regarded as made in the participating province with the highest rate of the provincial component of HST.

Rule 3:
If the Canadian rights, in respect of IPP, can be used only primarily outside the participating provinces:

The supply will be regarded as made in a non-participating province.

Rule 4:
If the Canadian rights, in respect of IPP, can be used otherwise than only primarily in participating provinces and otherwise than only primarily in non-participating provinces:

The supply will be regarded as made where the address of the recipient is situated or, if not applicable, in the province that has the highest rate of the provincial component of the HST.

Exceptions to the General Rules

Under the Proposed Rules, the general rules will not apply to all IPP. Specific place of supply rules will apply to each of the following IPP:

IPP that Relates to Real Property
IPP that Relates to Tangible Personal Property
IPP that Relates to Services to be Performed

CASSELS BROCK & BLACKWELL LLP - COMMENTS

The general place of supply rules and the exceptions to such rules are complex and must be complied with by suppliers of goods or services. Accordingly, suppliers are encouraged to seek appropriate tax advice.

The Cassels Brock & Blackwell LLP tax team has significant experience in commodity taxes and will continue to deliver updates on this matter as it unfolds in the coming months.

[1] Participating provinces are provinces that have harmonized their provincial sales tax with the federal goods and services tax ("GST") to create the harmonized sales tax ("HST") (i.e. Nova Scotia, New Brunswick, and Newfoundland and Labrador). Effective July 1, 2010, British Columbia and Ontario will be participating provinces.

[2] The HST place of supply rules are contained in Schedule IX to the Excise Tax Act ("ETA") and in the Place of Supply GST/HST Regulations.

[3] Under the ETA, Canadian rights, in respect of IPP, means that part of the property that can be used in Canada.