GST/HST on interprovincial sales of goods and services

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“Do I charge GST or HST on sales to another province?” If you are a nationwide business, this may be a question that you are asking. Each province has its own rate, and it can be difficult to try and make sense of the sometimes confusing information. Worse still, the federal government has strict regulations and you may face penalties if you fail to charge the appropriate tax. Don’t fear! Allan Madan Chartered Accountant will show you the way. By the way, if you’ve made a mistake in your HST filing you can visit our resource on how do I amend my HST return?

Before we take a look at what the rules are, let’s do a little bit of background work. The Harmonized Sales Tax (HST) is the combination of Federal GST and Provincial PST into a single value added tax. Not all provinces have HST, but the ones that do are:

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

The provinces that charge GST and their own Provincial Sales Tax are:

• Saskatchewan
• Manitoba
• Quebec

In Alberta, the provincial government only levies GST and does not have a Provincial Sales Tax. Therefore, it is the lowest sales tax jurisdiction among all the provinces. Did you collect HST, but did not register for an HST number on time? Visit our resource on I collected HST but didn’t register for an HST number on time, what should I do?

HST/GST on the Sale of Goods

The first issue in our examination of HST and GST is the sale of goods. In general, GST and HST is charged in the province where the goods are delivered. It is important here to differentiate between legal delivery and physical delivery. “Legal delivery” is a term that signifies when the buyer takes legal responsibility for the good from the seller. This is different from physical delivery, which occurs when the buyer actually receives the good. In most situations, the place of physical delivery determines what taxation laws are applied. To learn more about GST/HST, please visit the CRA’s website Goods and services tax/harmonized sales tax (GST/HST).

Also, you do not need to be the one shipping the goods. If physical delivery occurs in the province that the buyer is in, then their province dictates the taxation rules.

To explain how this works, let’s look at a couple examples.

1. A bank orders cheques to be shipped by the supplier directly to all its branches across Canada. In branches located in participating provinces, HST is applied. In non-participating provinces, GST or QST is applied.
2. A store in Nova Scotia agrees to sell t-shirts to a purchaser in Prince Edward Island. Because physical delivery occurs in PEI, the supply of goods is made in PEI and is subject to HST at a rate of 14%.
3. A store in Alberta agrees to sell computers to a company in Ontario. In their contract, they specify that the purchaser is responsible for all damages. However, the company will still cover all shipping costs. Although legal delivery occurs in Alberta, physical delivery occurs in Ontario. Therefore, Ontario’s HST rate of 13% will be applied.
4. A supplier in Nova Scotia makes a supply of headphones to an Ontario company. However, the company in Ontario specifies to their supplier that they want the headphones shipped directly to their clients in Arlington, Texas. The supplier in Nova Scotia sends the headphones by courier to the address in Texas. Although the supply is made in Nova Scotia, it is exempted from tax as an export. This is because the good is being sent to an address outside Canada.

Services – Do I charge GST or HST on sales to another province?

This is an interesting question, because services are taxed differently than goods. Generally, the customer’s business address determines the rules of taxation. If there is no billing address, then the place where most of the service is performed determines the taxation rules. If there is no business address and the service is performed equally in two provinces, then the one with the higher tax rate determines the taxation rules. If the customer is a non-resident of Canada, then the GST of HST is not applicable. For more information on charging and collecting sales tax, please visit Overview of charging and collecting sales.
To understand this concept, let us look at some examples.

1. A design firm in Quebec agrees to do some web design for a hotel in Newfoundland. The work is done entirely in their offices in Montreal. However, the business address of the hotel in Newfoundland is in St. John’s. Since the hotel’s address is in Newfoundland, the supply of the service is made in Newfoundland and HST will apply at a 13% rate.
2. A proofing, editing, and translation company in Ontario interfaces with its clients. It does not send its documents directly to its customers, but sends them through email. In fact, it never asks for the business address of its clients. Because most of the service is performed in a participating province, the supply is considered to be made in Ontario and thus HST will apply at 13%.
3. A videogame company has studios in Ontario and Quebec. It decides to create an online videogame on a client’s website, corresponding with them through email. The client pays through PayPal, and has no business address. If work is performed equally in Ontario and Quebec, then the province with a higher rate (Ontario at 13%) will determine the rate.

Did you receive acupuncture? Curious about whether you have to pay HST? Visit our resource on Does HST have to be collected/paid on acupuncture treatment?

ABOUT THE AUTHOR

ALLAN MADAN

CPA, CA

Allan Madan is a CPA, CA and the founder of Madan Chartered Accountant Professional Corporation. Allan provides valuable tax planning, accounting and income tax preparation services in the Greater Toronto Area.

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