Category: GST/HST Commentary

What You Must Know About EU VAT If You Have European Customers

Oct 6, 2021 by Jeremy

Establishing a business within Canada requires an understanding of Canadian tax law and the rules and regulations surrounding how to charge sales tax within the country. But what happens when your business extends beyond Canadian borders and into the European market? Unfortunately, European Union value added tax, or EU VAT, does not follow the same procedures as the traditional Canadian tax system. This can pose a new set of challenges to business owners.

Making tax mistakes when conducting international business can, and often does, result in tremendously expensive consequences. Luckily, mistakes are easily avoidable when you are armed with knowledge of how to navigate EU VAT. At Jeremy Scott Law, we help Canadian businesses implement tax strategies and solutions that work, saving them substantial time and money in the process. Let us uncomplicate the tax process for you. Call us at 902-403-7201 to find out how.

What Is EU VAT?

Value Added Tax, or VAT, is a consumption tax that is applied to tangible and digital goods or services sold in countries that utilize such a tax system. The European Union, as a whole, uses VAT through the supply chain, from production to point of sale. This means that as a Canadian business, if you sell to customers located in the EU, you must charge VAT.

The standard tax rate cannot be below 15%, but reduced rates as low as 5% can be applied to specific products or services. Annex III of the VAT Directive lists the products and services that qualify for reduced rates. Failing to comply with a country’s VAT rules and regulations can result in steep penalties and fines. Penalties may even be brought against businesses who intentionally fail to register for VAT.

There are several types of VAT rates utilized in EU countries depending on the country as well as the types of products/services sold. While the EU has worked to simplify VAT procedures, there are still significant nuances that businesses must account for. For instance, if your company sells to another business in Europe, you may not need to charge VAT. Furthermore, new EU VAT rules governing cross-border e-commerce were rolled out in July of 2021.

I Sell Directly To Customers. Do I Need To Charge VAT In The EU?

Yes. Any goods or services sold directly to customers within the EU are subject to VAT charges. A business must be registered for a VAT Mini One Stop Shop (MOSS) scheme in an EU country by the 10th day of the month after the first sale to a EU-based customer. Opting out of the VAT MOSS scheme means that your business must register for VAT in each and every EU country where you supply digital services.  

I Sell To Other Businesses. Do I Need To Charge VAT In The EU?

No. All business to business (B2B) sales in the EU are zero rated, meaning no VAT is charged. These sales should still be recorded, with proof of delivery, VAT number of the business customer, and the “intra-EU dispatch of goods” phrase clearly indicated on the invoice.

What Do I Need To Know About The New EU VAT E-Commerce Rules?

In July, 2021, the European Commission adopted new rules for e-commerce and VAT. Everyone is affected by the new VAT e-commerce rules, from online sellers and marketplaces to software platforms to everyday consumers. If your business sells directly to customers (B2C), then it is important to understand the changes. 

In an effort to streamline VAT registration, businesses are now required to register for the declaration and payment of VAT in only one EU state. This is facilitated by the One Stop Shop, an online portal that businesses can use to comply with EU VAT regulations.

Moreover, the VAT exemption for goods imported to the EU under EUR 22 has been abolished, meaning all commercial goods are now subject to VAT and formal customs declaration. The EU adopted the Import One Stop Shop (IOSS) to facilitate easy VAT declaration and payment of low-value goods. Therefore, for shipments valued at EUR 150 or below, VAT can be charged using the IOSS or collected from the final customer by the customs declarant. 

The new EU VAT rules also impact online marketplaces. Any online marketplace that facilitates the buying and selling of goods is now considered a “deemed supplier,” meaning they are responsible for charging and collecting VAT. The VAT rate charged is that of the consumer’s country of residence.

It should be noted that these changes only govern business to customer (B2C) sales. For business to business sales, the new e-commerce VAT rules do not apply.

How Can A Tax Lawyer Help Navigate EU VAT?

The complexities of EU VAT extend far beyond what we have reviewed today. Seeking the assistance of an experienced tax lawyer can help your business navigate European Union VAT charges and avoid costly mistakes. The tax procedures of the EU are not the same as the regulations that businesses abide by in Canada. As such, it is important to move forward carefully and mitigate risk wherever possible. At Jeremy Scott Law, we leverage our years of experience to help businesses and startup companies make well-informed tax decisions. Through our legal counsel, we allow business owners to focus fully on growing their companies. Let us help you take your business to the next level. Call Jeremy Scott Law at 902-403-7201 today to speak with an experienced tax lawyer and learn how to navigate European commerce efficiently and successfully.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

First Nation Persons and GST/HST Exempt Sales

Sep 13, 2021 by Jeremy

First Nation persons and GST/HST exempt sales is a topic that can be confusing and legally complex. Who is eligible, and what goods and services qualify? What responsibilities rest with First Nations persons, bands or band empowered entities when making a purchase, and what responsibilities are the vendors? There are often many questions and concerns at the nexus of First Nation persons and GST/HST. For further guidance, consider speaking with an experienced lawyer at Jeremy Scott Law at 902-403-7201 today.

What Is GST/HST?

The goods and services tax (GST) is a value added sales tax that applies throughout Canada.  Some provinces have harmonized their provincial sales taxes with the GST to create the harmonized sales tax (HST). These include Ontario, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador. The GST rate is 5% in provinces with no HST. In Ontario the combined GST/HST rates are 13%.  The combined GST/HST rates in the remaining above-mentioned provinces is 15%.

Special Tax Status for First Nations Persons

When it comes to products and services sold on-reserve, First Nations Persons, Bands and Band Empowered entities  are generally not required to pay GST/HST on those purchases pursuant to Section 87 of the federal Legislation, which states that a First Nation person or band situated on a reserve is exempt from taxation on personal property. Additionally, First Nations persons or bands with interests in surrendered or reserve lands may not be subject to personal property taxation.  The Canada Revenue Agency’s administrative policy with respect to the GST/HST status of supplies made to or from First Nations Persons, Bands and Band Empowered Entities is outlined in Bulletin 039.  The CRA will generally require documentary proof of the status of the purchaser (such as a certificate of status card), as well as documentary proof that a supply was made on reserve lands (such as a receipt showing the place of delivery).

First Nations HST Point-of-Sale Exemption

In addition to the above outlined tax relief, there is a specific HST point-of-sale exemption applicable to off reserve purchases in the Province of Ontario only.  First Nations Persons and bands in Ontario are exempt from the 8% Ontario provincial portion of the HST on qualifying off-reserve acquisitions.

When imported into or acquired in Ontario, certain property and services are eligible for the HST point-of-sale exemption. These include:

  • Household items, clothing, furniture, new/used motor vehicles, take-out meals, and other tangible personal property
  • Maintenance agreement or warranty of the tangible personal property that qualifies
  • Telephone, cable television, internet, or other telecommunication service that falls under description of Part IX of the Excise Tax Act (Canada).

Property and services that do not qualify for the HST point-of-sale exemption include:

  • Alcoholic beverages including beer, wine, and liquor
  • Any form of energy including natural gas and electricity
  • Meals eaten inside a restaurant (take-out meals are exempt)
  • Gasoline and fuel (within the meaning of the Gasoline and Fuel Tax Acts)
  • Tobacco as described in the Tobacco Tax Act
  • New homes, hotel accommodations, condos, mobile homes, parking, and other real property or transient accommodations not situated on a reserve.

This point of sale rebate is applicable in the Province of Ontario only.

 Businesses Owned By First Nation Persons – Registering For GST/HST

First Nation business owners are required to register for GST/HST when that business has global taxable sales of products and services that exceed $30,000 in four consecutive quarters (given year). This amount increases to $50,000 for certain charities and not-for-profits.  First Nations businesses may provide the above explained exemptions to first nations purchasers, but are required to charge, collect and remit HST on supplies made to any non-qualifying customers.

GST/HST Rebates For First Nation Persons

There are several circumstances in which First Nation persons may claim a GST/HST rebate. These include:

  • For qualifying purchases of supplies or services made off-reserve, Ontario First Nations residents can recover the HST (provincial) part of the GST/HST
  • Amounts paid incorrectly for products delivered to or bought on a reserve
  • According to the Canada Revenue Agency, a band-empowered entity, tribal council, or band council that has paid GST/HST on purchases of meals, entertainment, short-term accommodation or transportation off-reserve may claim rebates of this tax..

How To Claim a GST/HST Rebate

In order to claim a GST/HST rebate, First Nation purchases may complete a General Application for GST/HST Rebate (GST Form189).  There are several different “reason” codes that describe situations in which a First Nations purchaser may be eligible. For example, reason code 1(A)  involves amounts paid in error for property or services purchased on or delivered to a reserve.  Generally when claiming a rebate, only one reason code is all that can be used per application. There are also circumstances in which a rebate cannot be claimed. Information regarding GST/HST rebate claims can be found at the Government of Canada website.

Contact Jeremy Scott Law Today

Clearly the rules around First Nation persons and GST/HST exempt sales are complex and there are many nuances and requirements that can be very difficult to interpret.  It is not possible to include every single aspect of GST/HST exempt sales in this short article. Those who need more information and answers to questions are invited to contact Jeremy Scott Law today at 902-403-7201.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

GST/HST Interest & Penalties Apply On “Net Tax”

Sep 2, 2021 by Jeremy

The tax laws enforced by the Canada Revenue Agency (CRA) can be overwhelming and complicated. In some cases, interest and penalties apply on certain taxable amounts. In a recent court case, the Federal Court of Appeal in Canada has taken a definitive stance on GST/HST interest and penalties that apply on the “net tax” that remains after deducting certain claims. This court case changes the legal landscape regarding the amount of tax that interest and penalties can be applied to for a business or individual. In many cases, taxpayers are unaware that they have the legal right to pay less in interest and penalties if the CRA made their calculations incorrectly. If you are curious as to how interest and penalties apply in your specific case, consider contacting experienced Canadian tax lawyer Jeremy Scott at (902) 403-7201 or Jeremy@Jeremyscott.ca today.        

GST/HST Taxes

There are two types of taxes that apply to certain goods and services in Canada.

GST Taxes

The goods and services tax (GST) applies to certain goods and services made in Canada. The GST also applies to both real property (buildings, land, etc.) as well as intangible property (trademarks, intellectual property, etc.).

HST Taxes

The harmonized sales tax (HST) is a way for certain Canadian provinces to “harmonize” their provincial sales tax with the GST.  The Canadian provinces that blend their provincial sales tax with the GST are New Brunswick, Nova Scotia, Ontario, Newfoundland and Labrador, and Prince Edward Island.  In these Canadian provinces, the HST applies to the same types of goods and services as the GST, but at a higher combined rate.

Who Must Pay GST/HST Taxes?

Nearly everyone must pay the GST/HST taxes on the applicable goods and services. However, some specific organizations and groups will not always have to pay GST/HST taxes, including certain provincial and territorial governments and Indians.

Understanding GST/HST Interest and Penalties

When GST/HST tax returns and any associated tax payments are submitted in an untimely manner, the CRA’s standing administrative position on the calculation of interest and penalties has been that these amounts are applied to “all amounts outstanding.” The CRA has stated that “all amounts outstanding” does not include any rebates, input tax credits, or any possible available refunds. The CRA has until recently indicated that any other amounts that are outstanding will be subject to additional interest and penalties often prior to considering what, if any, amounts are owed by the CRA to the taxpayer.

Canada v. Villa Ste-Rose, Inc.

In 2021, Canada’s Federal Court of Appeals heard the case Canada v. Villa Ste-Rose, Inc. that directly addressed this specific position of the CRA. In this case, Villa Ste-Rose, Inc. (Villa) was a not-for-profit corporation that essentially operated a residence for senior citizens. Due to a fire that destroyed their building, Villa submitted a return in an untimely manner. Villa was not entitled to input tax credits, as the supplies they were claiming were exempt. However, Villa was entitled to rebates under Sections 256.2(3) and 257(1) of the Excise Tax Act.

The original amount of penalty and interest assessed by the CRA did not take into consideration the GST/HST rebates that were due to Villa. Villa appealed to the Tax Court of Canada (TCC) and argued that the GST/HST interest and penalties should be based solely on the “net tax” owed, not the total amount collectible. The TCC agreed with Villa and made the determination that GST/HST interest and penalties should be based only on the “net tax” owed by a taxpayer.

GST/HST Obligations

The reporting requirements and obligations surrounding GST/HST interest and penalties can be confusing and challenging to understand. In many cases, taxpayers remain unaware of their full legal tax obligations. If a taxpayer finds themselves up against the CRA regarding an attempt to collect interest and penalties on amounts that are not to be included in the amounts due to the CRA, they ought to consider challenging the assessments. If you find yourself concerned about the amount of interest and penalties assessed on you as a taxpayer, consider visiting with Jeremy Scott Law to learn more about your legal rights and obligations when it comes to your GST/HST interest and penalties.

How an Experienced Tax Lawyer Can Help

In many cases, filing for your taxes, and making determinations regarding possible GST/HST penalties can be legally complex. An experienced tax lawyer can help you with the following:

  • Create an overall tax planning solution that specifically caters to your specific financial needs
  • Provide different solutions to minimize taxes payable, without ever violating any Canadian tax laws
  • Provide a comprehensive tax return that limits the possibility of any CRA audit or prosecution
  • Properly calculate your taxes, ensuring that any and all possible exemptions are applied
  • Discuss any possible GST/HST interest and penalties
  • Defend and represent any client that encounters tax issues with the CRA (businesses, not-for-profit organizations, or individuals)

Contact Jeremy Scott Law Today

If you believe that you were assessed GST/HST interest & penalties inappropriately, or if you have any questions regarding your taxes in Canada, consider visiting with an experienced tax lawyer. In many cases, individuals and businesses simply do not know their legal options to reduce their taxable amount, or how to successfully argue against the CRA regarding interest or penalties assessed. Even where a GST/HST tax reassessment may be valid, Jeremy Scott provides the experience and expertise necessary to help answer your questions, and ensure you pay the minimum amount of penalty and interest required under the law. We look forward to visiting with you, and helping you through any issues you may have regarding GST/HST interest & penalties on “net tax” or any other tax questions you may have. Contact our legal team at (902) 403-7201 today to learn more, and schedule an appointment to address your specific tax questions.

If you found this information valuable, I encourage you to check out my other blog posts.


The Disclaimer:
Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

Ways to Minimize the Cashflow Impacts of GST/HST

Aug 9, 2021 by Jeremy

According to the Organization for Economic Co-operation and Development (OECD), Canada received on average a lower proportion of revenues from taxes on goods and services than other OECD member countries. However, that does not mean that there are not still significant cashflow impacts of GST on Canadian businesses. In Canada, any taxpayers that earn over $30,000 in taxable sales must register with the Canada Revenue Agency (CRA) to collect the federal goods and services tax (GST) and harmonized sales tax (HST). While businesses can then later claim this amount back from the CRA in the form of Input Tax Credits (ITCs), this can take time and eat into the business cashflows. If you have questions or concerns about the cashflow impacts of GST or are curious if there are ways to minimize the applicability of GST/HST, it may be helpful to speak with a seasoned Canadian tax lawyer. Jeremy Scott Law provides indirect tax advice to clients and may be able to provide you with the guidance that you need. Reach out for a consultation today at (902) 403-7201.

Understanding GST/HST

In order to understand the cashflow impacts of GST, it is important to understand both GST and HST. Simply put, the GST applies to taxable goods and services supplied in Canada while the HST is effectively the GST applied at a higher tax rate in particular provinces. A person is required to register and collect GST/HST if they make taxable supplies in Canada and the value of those supplies exceeded CAD30,000 in the last year.  This amount applies to any taxable supplies made both inside and outside of Canada and is applicable for taxable supplies of any associated entities. The requirement to register applies to individuals, corporations, trusts, and associations.

The reporting requirements of businesses vary according to their annual revenue in Canada. The reporting period for submitting GST/HST tax returns typically is as follows:

  • Annually for businesses with total annual revenue of up to CAD1.5 million.
  • Quarterly for businesses with revenue ranging between CAD1.5 million to CAD6 million.
  • Monthly for businesses with revenue that totals over CAD6 million.

Recovering GST

For many businesses, the GST/HST paid on the goods and services they acquire can be recovered by claiming an ITC on their tax return. This is possible because only the final consumer of the products or services is supposed to pay GST.

Although businesses are able to recover GST/HST, the cash flow impacts of GST can be difficult for businesses because it takes time for them to recover the amount. Fortunately, there are methods to minimize the applicability of GST/HST. 

Ways To Minimize Applicability of GST/HST

There are several ways to minimize the negative cash flow impacts of GST on businesses. These include:

  • Closely Related Election to Minimize Tax on Intercompany Transactions (Section 156 of the Excise Tax Act.)
  • Election to Avoid Tax on the Sale of a Business (Section 167 of the Excise Tax Act.)
  • Purchases of Taxable Real Property.

Closely Related Election

Section 156 of the ETA allows businesses that have intercompany transactions with Canadian Corporations or partnerships to avoid having to charge GST on otherwise taxable goods and services. So, for example, if company A and company B have a parent-subsidiary relationship and company A leases its building to company B, company A no longer has to include GST on the rent charge – saving the issue of company B having to wait for a refund in the form of ITC from the CRA. However, the legislation around who qualifies for Section 156 can be strict and confusing, which is why it is important to work with a seasoned tax lawyer to determine eligibility and correctly file the GST election. Jeremy Scott Law may be able to advise you and help you understand all of your financial and legal rights.

Purchase or Sale of an Entire Business

Generally, the seller is expected to collect GST/HST from the purchase during the sale of a business.  Where however certain requirements are met, the purchase and vendor can make a joint election under section 167 that will result in no GST/HST. These requirements are:

  • The purchase must be buying all or part of a business.
  • The business must have been established or carried on by the vendor or established or carried by someone else and then acquired by the vendor.
  • The purchaser must be acquiring ownership of whatever amount of the property is seen as necessary for the purchaser to carry on that business.

In addition to the above, if the vendor is registered for the GST/HST the purchaser must also be registered.  Understanding when the requirements of Section 167 of the ETA are can be challenging. A tax lawyer may be able to clarify.

Taxable Real Property

Another way that the CRA legally allows businesses avoid having to pay GST or HST on a large transaction and then wait for the ITC — seriously disrupting cash flow — is by self-assessing the tax on the purchase of real property in place of paying the GST/HST to the supplier. Generally, a GST/HST registered purchaser acquiring real property is obligated to self-report the applicable tax.  Often this self-reporting is done by including the GST/HST on the purchaser’s tax return, however this is not always the case. Completing the self-reporting and claiming any available input tax credits minimizes the cash-flow impact of GST/HST on the purchase of real property.

How an Experienced Canadian Tax Lawyer Can Help

The cash flow impacts of GST can be difficult to navigate for many Canadian taxpayers, which is why it can be helpful to work with a seasoned Canadian tax lawyer. The lawyer may be able to assist you in understanding how GST works and what steps you can take to minimize the applicability of GST as you conduct business. Consider reaching out to Jeremy Scott Law at (902) 403-7201 for guidance.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

Do You Need To Register For Provincial Sales Taxes?

Jul 20, 2021 by Jeremy

 

Do you need to register for Provincial Sales Tax (PST)? Canada is unique in its administration of sales tax. Not only are there multiple types of sales tax, but the requirements vary from province to province. It is not surprising that many businesses are left wondering which taxes they need to register for, collect, and remit. At Jeremy Scott Law, we offer practical guidance to businesses about which taxes they are subject to and how to ensure they are complying with local rules. With the recent uptick in e-commerce and digital services, rules are constantly changing about what goods are taxed. Call the experienced tax lawyer Jeremy Scott at 902-403-7201 if you would like to discuss whether you need to register for provincial sales taxes, and ensure your legal and financial rights remain protected.

Sales Tax in Canada

In Canada, sales taxes are levied by both the federal government and the provinces. The federal tax, called the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST), is a federal value-added tax. The GST applies across the country, while the HST is in effect only in certain provinces. In British Columbia, Manitoba, and Saskatchewan, there is a separate provincial sales tax called the retail sales tax (RST).

Most of the provinces, excluding Alberta, levy a sales tax, called the Provincial Sales Tax (PST). In some provinces, however, where the HST is in effect, the HST encompasses the provincial sales tax rate, so both the federal and provincial taxes are administered by the Canadian Revenue Agency. These provinces include Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The goal of the HST is to “harmonize” federal and provincial sales taxes to simplify administration and reduce costs. In reality, however, businesses can face new complications from the varying tax rates across provinces.

Sales Tax by Province

Below is a grid depicting the various tax rates per province or territory.

ProvinceTotal Tax RateTax Type
Alberta5%GST only
British Columbia12%GST & PST
Manitoba12%GST & RST
New Brunswick15%HST
Newfoundland and Labrador15%HST
Northwest Territories5%GST only
Nova Scotia15%HST
Nunavut5%GST only
Ontario13%HST
Prince Edward Island15%HST
Quebec14.975%GST & QST*
Saskatchewan11%GST & PST
Yukon5%GST only

* Quebec’s provincial sales tax is called the Quebec sales tax (QST). Note that Revenu Quebec administers both the QST and the GST/HST when applicable to Quebec businesses.

When Does a Retailer Need to Register for Provincial Sales Tax?

According to the Canadian Revenue Agency, a business must register for the GST/HST when:

  • It makes taxable sales, leases, or other supplies in Canada, and
  • It is not a small supplier

Canadian retailers generally need to register for and collect the GST or HST when their sales exceed $30,000 over one calendar year. However, each province has its own rules regarding eligibility for sales tax. For example, Manitoba’s threshold is only $10,000 of taxable sales, while Saskatchewan has no small seller exemption. Retailers are responsible for complying with all of the requirements of the federal tax and the tax of the province in which it is located.

If a province has adopted the HST, the retailer collects the total tax rate and then remits a proportional amount of the tax to the Canadian Revenue Agency and the appropriate provincial tax agency.

However, if a province has not adopted the HST, a business that sells or delivers taxable goods in that province is responsible for collecting the GST and the province’s PST separately and remitting those taxes to the appropriate agency. Canadian business owners should consider consulting with a lawyer to ensure their businesses are complying with local and federal sales tax requirements.

Exempt Goods

One factor that impacts whether you need to register for provincial sales taxes is the type of goods you sell. Under the GST/HST, necessities like groceries, medicine, and healthcare services are exempt from sales tax. Rules regarding exempt goods vary by province.

When Does an Out-of-Province Seller Need to Register for PST?

With the advent of e-commerce, sales taxes have become somewhat convoluted. Many out-of-province sellers are left wondering if they have all their bases covered. Generally, provincial sales taxes are only applicable to retailers that sell or deliver non-exempt goods in that province. However, remote, online sellers cannot evade this requirement.

Provincial governments are beginning to impose new requirements to ensure online retailers doing business there are subject to provincial sales tax. British Columbia, for example, enacted legislation that imposes the PST on out-of-province retailers that:

  • Sell or deliver taxable goods to British Columbia,
  • Solicit orders through advertising or other means to purchasers in British Columbia, and
  • Accept purchase orders from customers in British Columbia

Note that these rules expand tax requirements beyond businesses that have a physical presence in British Columbia, although online advertising alone is probably not sufficient to establish “solicitation” for purposes of the tax.

Similarly, Saskatchewan amended its Provincial Sales Tax Act in 2020 when it required operators of “electronic distribution platforms” and “online accommodation platforms” to register for the provincial sales tax, as well as “marketplace facilitators.” This law is intended to require online businesses to register for the Saskatchewan PST and charge sales and remit sales tax on purchases made through those platforms, including digital purchases like movies and music.

Because each province is unique, it can be difficult to tell when you need to register for PST (provincial sales taxes). If you are operating a Canadian e-commerce business, or simply want to ensure you are complying with local and federal sales tax obligations, consider consulting with an experienced business lawyer in your area.

Talk to an Experienced Canadian Tax Lawyer

If you are left wondering if you need to register for provincial sales taxes, you are not alone. Many business owners struggle to keep up with the constantly changing rules and regulations surrounding Canadian sales tax. Jeremy Scott Law provides clients with practical tax advice about when to register for GST/HST, as well as each province’s PST. We also represent clients during tax audits and when attempting to recover over-paid taxes. Call our legal team at 902-403-7201 or contact us online to raise questions or concerns about Canadian sales tax and learn more about all of your tax options.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

GST, HST and Residential Rental Properties

Jul 8, 2021 by Jeremy

Building new properties and maintaining rental properties are already expensive as it is, but factoring in GST and HST can make the process even more burdensome. The Canadian Revenue Agency does offer partial tax rebates for new construction and there may be tax credits available if the property is going to be used for short term rental purposes.  Consider speaking to an experienced tax lawyer to ensure you are maximizing your tax benefits, especially if you are a commercial builder or landlord. Call Jeremy Scott Law at 902-403-7201 or contact us online with your GST/HST questions, and allow us to provide practical and helpful tax advice.

When Does the GST/HST Apply to Residential Rental Properties?

If you are in the business of renting properties, there will probably be sales tax implications.

Purchasing Rental Property

For many landlords, the rental process begins with purchasing a rental property from a builder. When a property owner purchases a new construction or substantially renovated residential rental property, they must pay GST/HST on the purchase. This even applies to builders who have constructed the property and then “self-supplied” it. Purchases of new homes or substantial renovations may be eligible for a rebate, however, which will be discussed in further detail below.

Maintaining Rental Property

If you are in the business of renting property on a long term basis, generally the GST and HST paid on operating expenses is not recoverable. However, if you are in the business of renting property on a short term basis (Ie daily or weekly stays), then it may be possible to recover the GST and HST incurred on your expenses through the claiming of input tax credits.

When Is a Buyer Eligible for a Residential Rental Property Rebate?

There is a federal tax rebate available for purchasers who have bought a new construction or newly renovated home from a builder. The rebate also extends to payments employing others to build or renovate a rental home, modifying a non-residential property into a residential property, or buying land to be leased to others. To qualify for the new residential rental property rebate, there are a few criteria the purchaser must meet listed below.

  1. The new residential property must be occupied immediately by tenants for at least one year. The landlord cannot be the first person to live in the new rental property. It must be immediately rented out.
  1. The purchaser must claim the rebate with the Canada Revenue Agency. The builder cannot claim the rebate. The buyer must claim the rebate by submitting an application to the Government immediately following closing on the property.

The rebate applies to:

  • Purchasers who paid the GST/HST on the closing of a new or renovated housing complex in a residential building
  • Builders who accounted for GST/HST on the self-supply of a residential complex
  • Co-operative housing corporations (“co-ops”) that paid the GST/HST upon purchase or self-supply of a residential complex or addition to a residential complex.

Self-supply refers to a situation where a builder has built the residence and then sold it to itself as the owner. There may be other scenarios in which the purchaser of a rental property can claim the rebate. Consider speaking with an experienced Canadian tax lawyer for more information if you believe you may qualify for this rebate.

How Do I Calculate the Rebate?

Once you have determined your eligibility, the residential rental property rebate is fairly straightforward to calculate. The rebate applies to properties where the fair market value of the qualifying residential unit is less than $450,000 at the time the tax was payable. One exception to this limit is for residential trailer parks – in this case, the fair market value must be less than $112,500. The NRRP is then calculated at 36% of the GST (or the federal portion of the HST) paid on the purchase. The maximum rebate is $6,300. There may be rebates available for provincial sales taxes as well. Ontario offers a rebate of 75% of the provincial portion of HST, with a cap of $24,000.

What If I Rent a Vacation or Second Home?

Even if you are not in the business of being a landlord, any property that you rent should be considered in your tax liability. Again, any income generated from a rental property must be included in either a personal tax return, or if operated through a business, in the business’s tax return.

If you manage an Airbnb property, you may also need to collect the GST/HST on your rental property. Generally most short term rentals (Ie rentals for less than 30 consecutive days) are subject to GST/HST however even some long term rentals can be taxable – if the rental is of a ‘hotel type’ property.  The policy here is that short-term rentals are subject to sales tax, while long-term rentals are generally not.

As of July 1, 2021 Airbnb may collect this tax in certain limited circumstances if the property owner does not collect the tax on their own behalf.  Property owners should consider how this impacts their operations so they understand who must account for the GST/HST remit it to the Canada Revenue Agency.

Bear in mind that you may not be subject to the GST/HST if you are considered a “small supplier” per the Canada Revenue Agency. A small supplier is one whose revenue is less than $30,000 in the last four calendar quarters.

Get Help from an Experienced Canadian Tax Lawyer Today

Whether you own large residential rental properties or simply rent out a vacation home for a few months of the year, you most likely have both federal and provincial tax obligations. Determining which taxes you are subject to and how much you owe can be challenging, so consider reaching out to Jeremy Scott Law with your tax questions. We enjoy working with clients to minimize their tax liability and maximize their potential rebates. Give us a call at 902-403-7201 or contact us online with your GST/HST rental property questions, and allow us to provide practical and helpful tax advice.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

How To Manage Your Indirect Tax Risk

Jun 15, 2021 by Jeremy

An important part of strategic planning for any company is managing indirect tax risk. Indirect taxes generate significant revenue for governments.  For example, the Government of Canada collected $38.2 billion in goods and services (GST) taxes during the fiscal year 2018-2019.  Governments often levy multiple forms of indirect tax on companies, and tax monitoring and compliance are increasingly complex and dynamic issues.  Failure to correctly collect, document, and remit all necessary indirect taxes can result in costly fines, audits, and other legal action.  If you need help with assessing and managing your Canadian company’s indirect tax risk, consider speaking with a knowledgeable tax lawyer at Jeremy Scott Law at (902) 403-7201 to understand how we may be able to assist with your indirect tax planning needs.

What Is Indirect Tax Risk?

Virtually every business has some level of indirect tax risk.  Unlike direct taxes, which a taxpayer pays directly to the government, Indirect taxes are taxes that can be passed on to another entity.  Just as a business would assess and monitor its legal or operational risk, indirect tax risk must also be fully examined and closely monitored.

Types Of Indirect Tax Risk

Canadian companies are potentially liable for several different types of indirect tax.  Indirect tax liability depends on many factors, such as a company’s industry, market, and where they do business (geographically and in the online space).  Below are some examples of indirect taxes that frequently apply in Canada.

GST/HST/Provincial Tax

The GST/HST and separate provincial taxes are Canada’s version of a value-added tax (VAT).  The federal goods and services tax (GST) is five percent.  Some provinces combine their provincial tax with the GST to form a single sales tax charge, called harmonized sales tax (HST).  Other provinces charge their sales tax separately from the GST.

Tax On Imported Goods And Services

Businesses that import goods and services to Canada may be liable for paying duty or import taxes.  Such taxes vary widely depending on the type of goods or services.

Insurance Premium Tax

Some Canadian companies may be liable for insurance premium taxes (IPT).  IPT varies between provinces and can apply to products such as:

  • Insurance policies
  • Funded and unfunded benefit plans
  • Reciprocal and inter-insurance exchanges

Who pays the tax can vary depending on the situation.  Company decision-makers may want to consult with a tax lawyer to determine their IPT liability.

Excise And Duty Taxes

Canada charges excise or duty taxes on some goods manufactured within Canada (separate excise taxes or duties are charged when such goods are imported).  Excise taxation is carried out under the authority of the Excise Tax Act and amendments, which can be viewed on the Canada Legal Information Institute’s website.  The excise tax applies to the following goods manufactured within Canada:

  • Fuel-inefficient vehicles
  • Air conditioners designed to be used in automobiles
  • Fuels, including gasoline, aviation fuel, and diesel fuel

Canada charges duty tax on certain goods, such as:

  • Spirits
  • Wine
  • Beer
  • Tobacco products
  • Cannabis products

Environmental Or Energy Tax

Some Canadian companies may be subject to federal or provincial environmental or energy tax.  These types of tax are often levied on:

  • Waste management
  • Mineral use
  • Carbon emissions

A knowledgeable tax lawyer at Jeremy Scott Law may be able to assist in determining indirect tax liabilities based on factors such as location, industry, and volume.

Strategies for Managing Indirect Tax Risk

Canadian companies face many forms of indirect tax risk and must be vigilant and proactive in their approach to indirect tax management.  Here are a few important strategies to manage indirect tax risk.

Awareness of Indirect Tax Obligations

One of the most important steps in ongoing indirect tax risk management is to gain an awareness of a company’s indirect tax obligations.  Companies must be aware of the federal, provincial, and local taxes that could apply wherever they do business, both at home and abroad.  Maintaining an understanding of where, when, why, and how indirect taxes are levied will work toward ensuring indirect tax compliance.  Taxation rates and laws change frequently, so companies should closely monitor tax laws in applicable jurisdictions. If you are interested in how to ensure that you are meeting all of your indirect tax obligations, consider visiting with an experienced tax lawyer at Jeremy Scott Law to learn more about your legal rights and obligations.

Designing and Implementing Effective Indirect Tax Collection and Accounting Systems

Another vital step in managing indirect tax risk is to design and implement effective systems for computing, collecting, and remitting indirect tax monies.  Indirect tax can potentially be collected at multiple stages of the product or service lifecycle, such as development, procurement, manufacturing, and delivery.  Indirect taxes are also usually due at different rates and frequencies.  Because of these issues, a simple “cash-in, cash-out” system for indirect tax management is often not enough.  Companies should seek out solutions that are tailored to their size, market, and industry to ensure that they pay the correct amount to the correct tax authorities at the correct time.

Collecting Appropriate Indirect Tax Data

Managing indirect tax risk also means collecting the necessary data to support indirect taxes collected and remitted.  Inadequate documentation can lead to missed or incorrect tax remittances, penalties, and adverse outcomes resulting from audits.  Governments often require companies to submit transaction-level data to ensure that indirect taxes have been correctly collected and remitted.  Failure to collect and store data regarding indirect tax can potentially cause significant legal, financial, and regulatory issues.

How An Experienced Tax Lawyer Can Help With Indirect Tax Risk

Effective management of indirect tax risk is a serious issue for all companies.  At the same time, understanding and navigating these areas requires significant time, expertise, and resources that many companies do not have.  A seasoned tax lawyer can ensure that business owners do not have to manage indirect tax risk on their own.  A tax lawyer may be able to assist with many aspects of indirect tax risk management, such as:

  • Ensuring taxes are being properly collected where required
  • Reviewing accounting systems to ensure they properly record taxes payable and receivable
  • Completing indirect tax returns
  • Registering the company for applicable tax programs
  • Assisting with tax audits

Many companies enjoy the peace of mind that comes with retaining a tax lawyer to assist with managing and fulfilling their indirect tax obligations.  If your company needs assistance with indirect tax issues, consider speaking with a knowledgeable tax lawyer at Jeremy Scott Law at (902) 403-7201 to understand how we may be able to help with managing your indirect tax risk.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

New GST/HST Rules For Foreign Companies

Jun 7, 2021 by Jeremy

The new GST/HST rules surrounding Canadian sales tax present unique challenges for foreign businesses.  While the new rules are designed to level the playing field for Canada-based businesses, those without a physical presence in Canada will need to adapt to continue selling goods and services to Canadian residents.  If you own a foreign business that is not a current Canadian Revenue Agency registrant, consider speaking with a knowledgeable tax lawyer at Jeremy Scott Law at (902) 403-7201 to learn how we may be able to help you apply the new GST/HST rules to your business.

What Are The Canadian GST/HST?

Many foreign business owners are working to understand the new GST/HST rules, but are unsure of what the Canadian GST and HST are.  Simply put, GST and HST are VAT-style sales taxes imposed by federal and, in some cases, provincial governments in Canada.

GST (Goods and Service Tax)

Canada’s Federal Goods and Services Tax (GST) is a five percent sales tax on goods and services sold throughout Canada.  Depending on the province in which the Canadian consumer lives, the GST may be shown as a separate tax on a transaction or part of the HST total.

HST (Harmonized Sales Tax)

The Harmonized Sales Tax (HST) combines Canada’s GST with the provincial sales tax in participating provinces.  The following provinces use an HST model for sales tax:

  • New Brunswick
  • Newfoundland and Labrador
  • Nova Scotia
  • Ontario
  • Prince Edward Island

Each province has its own sales tax, so the HST rate varies between provinces and is based on the Canadian consumer’s province of residence.  The provinces of British Columbia, Manitoba, Quebec, and Saskatchewan do not use an HST model and instead charge their sales tax separately from the GST.

The Reason Behind Canada’s New GST/HST Rules

According to the Tax Foundation, North America accounted for only eleven percent of internet users in the world in 2015 but generated thirty-seven percent of digital value creation.  As cross-border sales of digital goods and services have increased, countries have increasingly turned to VAT-style taxes to remedy tax leaks caused by these types of transactions, and Canada’s new GST/HST rules are no exception.

Previous GST/HST Rules

Canada’s GST law went into effect in 1991.  At that time, the vast majority of transactions for goods and services in Canada took place in traditional brick-and-mortar businesses, and Canadian businesses were individually responsible for collecting GST/HST on each transaction.

The Canadian government did not impose liability for collecting and paying GST/HST on foreign businesses without a physical presence in Canada.  Instead, the government relied on Canadian residents to self-report transactions with such businesses and pay the GST due on a transaction directly to the Canada Revenue Agency (CRA).

The Digital Economy Influences The New GST/HST Rules

As the world entered the digital age, Canadians increasingly purchased digital goods and services online from foreign companies.  These foreign companies often did not have a physical presence in Canada, and therefore were not subject to collection and remittance of the GST/HST under the old rules.  This placed Canadian businesses at a disadvantage, causing their goods and services to be more expensive for Canadian consumers and rendering them less competitive in the digital economy.

Ultimately, the new GST/HST rules aim to level the playing field for Canadian and foreign businesses who are competing for sales from Canadian residents by requiring all businesses to collect the same taxes on digital goods and services sold to Canadian residents.  The knowledgeable tax lawyers at Jeremy Scott Law understand the impact of these Canadian tax laws on foreign businesses and will work to ensure that their clients are tax-compliant.

How The New GST/HST Rules Work

The new GST/HST rules are effective beginning July 1, 2021.  They apply to foreign businesses who make sales to Canadian consumers on:

  • Cross-border digital products and services
  • Goods supplied through fulfillment warehouses located in Canada
  • Short-term lodging/accommodation transacted through digital platforms

Under the new GST/HST rules, foreign businesses will be required to collect and remit GST/HST to the CRA if they:

  • Have no physical presence in Canada, and
  • Have total taxable goods or services whose value exceeds, or is expected to exceed, CAD $30,000 over twelve months 

Challenges For Foreign Businesses Under The New GST/HST Rules

While the new GST/HST rules increase fairness among foreign and Canadian businesses competing for sales in Canada, they pose new challenges for foreign businesses in the area of tax compliance.

First, foreign businesses must identify whether they are required to register with CRA to collect and remit sales taxes under the new GST/HST rules.  This could prove to be a difficult determination for small and middle-market businesses whose sales in Canada approach the CAD $30,000 threshold.

Second, foreign businesses that are required to register with the CRA to collect and remit taxes under the new GST/HST rules must implement methods to identify Canadian consumers and their province of residence to ensure they are collecting the correct GST/HST as required by CAR and provincial governments.  Foreign businesses may face challenges in updating their payment processing systems to identify and charge the correct GST/HST based on the Canadian consumer’s province of residence.

How An Experienced Canadian Tax Lawyer Can Help

Canada’s new GST/HST rules may be unfamiliar and confusing for foreign business owners.  As more countries around the world impose taxes on cross-border sales of digital goods, services, and warehoused products, business owners are left to understand and implement each country’s or region’s tax policy individually.  The good news is that foreign business owners do not have to navigate Canada’s new GST/HST rules alone.  A Canada-based tax lawyer can help business owners:

  • Determine whether they are required to register with CRA and collect GST/HST
  • Register the business for GST/HST with the CRA
  • Complete sales tax returns
  • Identify revenue streams that may or may not be subject to GST/HST taxation
  • Review accounting systems to ensure they properly record GST/HST taxes payable and receivable

If you are a foreign business owner grappling with the new GST/HST rules, consider speaking with a knowledgeable tax lawyer at Jeremy Scott Law at (902) 403-7201 to understand how we may be able to help with your GST/HST compliance needs.

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

Six Ways the GST/HST Rules for Charities and Not-For-Profits Differ from Everyone Else!

Apr 19, 2021 by Jeremy

Trying to understand the special GST/HST rules which apply to Charities and Not-For-Profit Organizations can be complicated. Especially for someone who has historically only examined the GST/HST rules applicable to ‘For Profit’ businesses. Below is a list of 6 areas where the rules for charities and NPOs differ from everyone else.

  • The GST/HST Registration Threshold.

In general, most people are required to register for GST/HST if their taxable worldwide sales exceed $30,000 in any single calendar quarter, or over the span of four consecutive calendar quarters. For NPOs and charities this threshold is increased to $50,000. Furthermore, charities which exceed $50,000 in taxable sales but have gross revenues under $250,000 are still not required to register for GST/HST.

  • Electing to Provide Separate Branches or Divisions with Their Own $50,000 Threshold.

While the threshold for GST/HST registration purposes typically includes any taxable revenues from all operations, this is not always the case.  In some instances, where a charity or NPO has multiple branches or divisions, it may be possible to elect with the CRA to have each separate branch or division considered separately for purposes of determining whether or not GST/HST registration is required.

  • Claiming Rebates where ITCs are not available.

As with most businesses, charities and NPOS are entitled to claim input tax credits (‘ITC’) to recover certain amounts of GST/HST incurred in the course of their commercial activities.  A portion of the GST/HST not recouped as an ITC is recoverable by filings a Public Service Body Rebate (‘PSB Rebate’).  The exact amount of the rebate is dependent upon the type of organization, what it does, and what rate of tax has been paid (5%, 13%, 15%).  

  • GST/HST Registration is not required to claim the PSB Rebates!

Many organizations are under the mistaken belief that they must be registered for GST/HST to claim the PSB rebate.  This is simply not true.  All charities are entitled to claim a PSB rebate, regardless of whether or not they are registered for GST/HST.  For NPOs is a little more complicated.  NPOs are not required to be registered for GST/HST to claim a rebate but they must meet a ‘qualifying test’.   A ‘qualifying’ NPO in one who receives at least 40% of its total revenue from government funding sources.  What qualifies as government funding and how the 40% test is calculated is described in more detail in the Canada Revenue Agency’s Guide – RC4034  GST/HST Public Service Bodies’ Rebate . 

  • The Rules Regarding when to Charge GST/HST are Vastly Different than for Businesses.  

Generally, the GST/HST applies to all goods and services sold in Canada.  There are a wide range of GST/HST exemptions that apply only to certain types of PSBs or charities.  For example, certain types of fundraising activities which may be taxable if performed by a for profit business may in fact be exempt from the GST/HST when undertaken by a charity or NPO.  It is tremendously important to understand these unique rules exist, and to ensure they are reviewed to fully grasp when your organization is required to collect GST/HST.

  • Completing GST/HST Returns for Registered Charities.

There is an often-missed set of GST/HST reporting rules which apply to registered charities.  In general, when a charity is registered for and collects GST/HST – they report only 60% of the taxes collected.  The retain the other 40% of the tax collected, but as a direct result are not entitled to claim ITCs with respect to these operations.  In certain instances, the full amount of tax collected must be reported (such as on sales of certain capital property, or when the GST/HST has been collected in error).  It may be possible to elect out of these special rules where certain conditions have been met.  Please note these special reporting rules apply to Registered Charities only.

In conclusion, there are many nuances in the GST/HST legislation that are unique to Charities and NPOs.  I have touched on a number of them and hope that you find this information useful, please note however that many of these rules are complex and I encourage you to conduct further research to ensure you fully understand how they impact your organization.  Please reach out to me should you require further assistance in understanding how the GST/HST impacts your organization.  

If you found this information valuable, I encourage you to check out my other blog posts.

The Disclaimer:

Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind.  I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face.  I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.

Regards,

Jeremy

© Jeremy Scott 2021. All rights reserved.