Even though the updated place of supply rules post 2010 harmonization in Ontario are a number of years old, there is still confusion as what rate to charge when companies are exporting out of their province within Canada. We are seeing a number of CRA audits that are mainly focused on this area.
The tangible personal property place of supply rules generally state that Subject to other provisions in the Act, a supply by way of sale of tangible personal property is made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply. There is a deeming rule, to change the place of supply of the goods from where the goods are made available to the destination province of the goods, and it states:
Tangible personal property is also deemed to be delivered in a particular province, and not in any other province, if the supplier either:
- ships the property to a destination in the particular province that is specified in the contract for carriage of the property;
- transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination;
This rule requires the supplier to be sufficiently involved in securing the transportation of the good by the common carrier or consignee. The supplier must retain a common carrier or consignee on behalf of the recipient (rather than on the supplier’s behalf or on behalf of a person other than the recipient) to have the good shipped to a province pursuant to terms negotiated, and instructions provided, by the supplier. A supplier that merely contacts a common carrier or consignee to indicate that the good is ready to be
transported pursuant to an arrangement that has already been established by the recipient with the carrier or consignee, or that is merely made aware of such an arrangement, is not considered to have retained the carrier or consignee on behalf of the recipient.
- sends the property by mail or courier to an address in the particular province.
Please see Draft GST/HST Technical IB B-103 for further examples of the place of supply rules for tangible personal property - http://www.cra-arc.gc.ca/E/pub/gm/b-103/b-103-e.html
The CRA is interpreting ‘retained on behalf of the recipient’ as not only calling and arranging the shipping of the goods, but also being responsible for paying the freight as well. Calling to arrange freight does not constitute ‘retaining’ under the CRA’s interpretation. The place of supply rules for exporting within Canada are a higher standard than exporting out of the country where you only need proof of exportation. We are also seeing clients ship out of province, but on customer’s trucks and still charging the destination rate for GST/HST purposes, not the Ontario 13%. If your company exports goods out of Ontario, how you are applying the place of supply rules should be reviewed thoroughly. If you find you have an error, a voluntary disclosure should be considered. If you believe you have an issue or want someone to review your current policies and procedures, DJB is able to help ensure your company is complying with the legislation.
Article written by: Greg Sawatsky, MAcc, CPA, CA