General

VAT/GST registration

VAT/GST compliance

International Supplies of Goods and Services

VAT/GST recovery

Tax points

Invoices

Record-Keeping Requirements

Audits

Special Indirect tax rules

Rulings

Types of indirect taxes (VAT/GST and other indirect taxes).

Generally, the federal goods and services tax (GST) applies to taxable goods and services supplied in Canada. The harmonized sales tax (HST) is a blended federal/provincial sales tax that includes a 5 percent federal component and a provincial component of 8 percent or 10 percent. HST applies in the provinces of Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland and Labrador. The province of Québec applies its own value added tax, the Québec sales tax (QST). The provinces of British Columbia, Saskatchewan and Manitoba levy provincial sales taxes (PST), also known as retail sales taxes, in their respective jurisdictions.

Are there other indirect taxes?

Yes, various other indirect taxes apply in Canada, including fuel taxes, tobacco taxes, alcohol taxes, insurance premium taxes and environmental levies.

What supplies are subject to VAT?

Most supplies of property, including real property, and services are taxable for GST/HST purposes.

What are the standard or other rates (i.e. reduced rate) for VAT/GST and other indirect taxes?

• GST: 5 percent (0 percent reduced rate).
• HST: 13 percent and 15 percent (0 percent reduced rate).
• QST: 9.975 percent (0 percent reduced rate).
• PST: 6 to 8 percent (up to 20 percent on certain goods).

Who is required to register for VAT/GST and other indirect taxes?

Generally, a person (e.g. an individual, a corporation, a trust, an association) is required to register and collect GST/HST if the person makes taxable supplies in Canada and the value of its taxable supplies made inside or outside Canada, including taxable supplies of any associated entities, exceeds 30,000 Canadian dollars (CAD) in the last 4 calendar quarters or in a single calendar quarter. If the value of those supplies is below this registration threshold, the person can choose to register voluntarily for GST/HST purposes. Once registered, the person must collect GST/HST on all its taxable sales.

Other special GST/HST rules apply to, among other entities, charities, taxi businesses, non-resident book and magazine publishers and anyone who enters Canada and charges admission to an event (e.g. a show, concert or seminar).

Similar rules apply for QST purposes.

Various other rules apply for PST purposes.

Is voluntary registration for VAT/GST and other indirect taxes possible for an overseas company (e.g. if the annual turnover is below the relevant VAT/GST and other indirect taxes registration threshold)?

Yes, a non-resident company that is not required to register under the general GST/HST registration rules may voluntarily register if the company, in the ordinary course of carrying on business outside Canada:

• regularly solicits orders for the supply by the company of goods for export to, or delivery in Canada
• has entered into an agreement for the supply by the company:
  • of services to be performed in Canada
  • of intangible personal property to be used in Canada or that relates to real property situated in Canada, to goods ordinarily situated in Canada or to services to be performed in Canada.

Similar rules apply for QST purposes.

Other rules apply for PST purposes.

Are there any simplifications that could avoid the need for an overseas company to register for VAT?

No.

Does an overseas company need to appoint a fiscal representative?

No.

Which forms and supporting documentation does an overseas company need to submit for VAT/GST and other indirect tax registrations?

To register for GST/HST, a non-resident company generally must submit:

• GST/HST application form (GST Form RC1 or GST Form RC1A depending on the circumstances)
• documents of incorporation.

A non-resident company may also be required to fill out a GST/HST questionnaire for non-residents and may want to file a request to keep books and records outside of Canada.

A non-resident company may be required to give and maintain security with the Canada Revenue Agency in some circumstances. Generally, a non-resident company with no permanent establishment in Canada that applies voluntarily or is required to register must provide such security. The amount of security may vary between CAD5,000 and CAD1 million. Different rules apply for QST and PST registration.

Is grouping* for VAT/GST and other indirect taxes possible? 

No, GST/HST grouping for registration purposes is generally not permitted. However, special rules may apply for certain qualifying investment plans.

How frequently are VAT/GST and other indirect tax returns submitted?

Generally, for GST/HST and QST purposes, the reporting periods of a business vary according to the total annual revenues from taxable supplies made in Canada by the particular business and any associated entities:

Different rules apply for PST purposes and vary by province.

What are the exchange rate rules in your country?

Generally, for GST/HST purposes, prices (i.e. consideration) expressed in a foreign currency must be converted into Canadian currency using either the exchange rate on the day tax is payable or on such other day that is acceptable to the tax authorities.

Exports – Goods

How are exports of goods treated?

Generally, goods exported from Canada are treated as zero-rated supplies (taxed at a 0 percent rate), subject to various conditions.

Exports – Services

How are exports of services treated for VAT/GST purposes?

Many services exported from Canada are treated as zero-rated supplies (taxed at a 0 percent rate). However, the zero-rated provisions are subject to numerous conditions.

Imports – Goods

How are goods dealt with on importation?

Various rules apply for imported goods. The tax application will vary based on numerous elements, including the registration status of the supplier and the type of imported goods.

The province of Quebec has adopted new QST rules for non-resident suppliers, including new QST registration obligations for many non-residents.

Imports – Services

How are services brought in from abroad treated for VAT purposes?

Various rules apply for imported services. The tax application will vary based on numerous elements, including the registration status of the supplier and the type of services imported.

The province of Quebec has adopted new QST rules for non-resident suppliers, including a new QST registration obligations for many non-residents.

Can an overseas company recover VAT/GST and other indirect taxes if not registered for VAT/GST locally?

No, however, in some specific cases the GST/HST system provides for a flow through for import GST paid by an unregistered non-resident company to certain GST/HST registered purchasers for recovery purposes. As various conditions apply, an unregistered non-resident company may wish to carefully review the rules before proceeding with this mechanism.

Also, an unregistered non-resident company may be eligible for a rebate equal to the tax paid for qualifying goods exported outside of Canada. These rebates are subject to certain conditions.

Are there any exemptions with the right to recover or deduct input VAT?

No, however, Canada provides a zero-rate of GST/ HST to many qualifying goods and services, which give rise to a right for the supplier to recover or deduct input tax. Common examples are qualifying exported goods and services, basic groceries and prescription medicine.

Are there any restrictions to the deduction of input VAT?

Yes, businesses are subject to a number of GST/ HST restrictions that limit their recovery of the GST/HST paid on inputs.

When is VAT/GST due on a supply of goods or services?

The GST/HST is generally payable on the earlier of: the day the consideration for the goods or services is paid or becomes due. The GST/HST rules provide several rules to determine when the consideration become due and can vary based on the agreement, the type of supply and certain deeming provisions.

Is a business required to issue tax invoices?

Yes, businesses must comply with a number of tax disclosure requirements.

Is it possible/mandatory to issue invoices electronically?

Yes, it is possible to issue invoices electronically. However, the invoice must, either alone or in combination with another eligible document or documents, contain the information required for the recipient to be able to claim the input tax credit. Businesses are required to follow specific requirements for electronic records.

Is it possible for the vendor to issue an invoice (i.e. self-billing)?

Canada does not have a formal self-billing program.

How long must records and invoices be retained?

Generally, businesses must retain books and records for six years after the end of the year to which they relate. However, certain assessments can be issued for up to seven years and may require keeping the related books and records longer.

Can the invoices be stored abroad?

Under the GST/HST rules, books and records must generally be stored in Canada. However, non-residents may request authorization to keep records outside of Canada, subject to certain conditions.

Do tax audits take place on a regular basis?

There are no specific guidelines as to how often the tax authorities do tax audits.

Are audits done electronically in your country (e-audit)? If so, what system is in use?

The tax authorities may request data in electronic format during an audit.

What penalties can arise from non-compliance?

Various penalties can arise from non-compliance under the GST/HST, QST and PST systems. For example, different GST/HST-related penalties may apply where the person has failed to file a return by the due date, has made a false statement or omissions attributable to gross negligence or has failed to recapture input tax credits as required. Also, interest is generally assessed on outstanding tax amounts.

Are there any special rules for the sale of a company by one taxpayer to another where VAT is not due on the sale?

Yes, subject to a number of conditions, a person may be able to sell certain assets of a business or part of a business without charging or collecting GST/HST where the appropriate election is filed.

However, businesses must also consider various other taxes including QST and PST, which may apply.

Are there unique specific indirect tax rules that you would not expect to find in ‘standard’ VAT jurisdictions?

Yes, the GST/HST and QST include various rules such as partial rebates for certain entities, self-assessment rules for various imported supplies, and specific rules for certain financial institutions and pension plans.

Also, the province of Québec has recently implemented new QST rules for non-resident suppliers that require these suppliers to register under a simplified registration process and collect the QST on certain supplies.

Does a reverse-charge mechanism apply for goods or services?

Yes, some businesses are required to self-assess GST, HST or PST on certain goods and services imported in Canada or brought into certain provinces.

Are there indirect tax incentives available (e.g. reduced rates, tax holidays)? 

Yes, under the GST/HST and QST systems, certain supplies qualify as zero-rated supplies and are taxed at a 0 percent rate, such as basic groceries.

For PST purposes, certain exemptions may apply.

Are rulings and decisions issued by the tax authorities publicly available?

In general, severed interpretation letters released by the tax authorities are available through publishers. However, a few provinces do publish some of their severed interpretation letters on their websites.

John Bain
Partner
KPMG in Canada
T: +1 416 777 3894
E: jbain1@kpmg.ca

Walter Sisti
Partner
KPMG in Canada
T: +1 416 777 3920
E: wsisti@kpmg.ca