When running a small business, you have plenty of rules and regulations to follow, including the taxes you charge to your customers. Even once you figure out which provincial sales tax types apply to your business, you still have to know the ins and outs of each type to charge and remit the tax payments correctly. Under the Canadian GST/HST regime, the place of supply rules affect the tax rate you charge or if you have to charge taxes at all, for example. How you navigate these rules can have a significant impact on your business, and it all starts with figuring out how the place of supply rules relate to your company.
Importance of Place of Supply Rules
When you sell something, you generally need to pay a tax on that item or service. But the taxes charged vary by province. If you’re only doing business in your own province, you should already know the tax laws. It gets tricky when you do business in other provinces, especially if the provincial tax rates there are different than your own. The place of supply rules help clarify which taxes you need to charge.
How Place of Supply Affects GST/HST
The general rule under the goods and services tax seems simple: If you make taxable supplies of goods and services in Canada, then you need to collect and remit GST. Supplies made outside of Canada fall under the zero-rated category, and you don’t need to charge any GST. In practice, the applicable rate isn’t the same throughout Canada. If you use supplies made in HST-participating provinces, such as Ontario, New Brunswick, Nova Scotia, Newfoundland, and Prince Edward Island, then you must charge the harmonized sales tax instead. For supplies made in the province of Quebec, the Quebec sales tax applies.
The place of supply impacts how you apply the GST/HST/QST in your everyday operations. If you have a traditional brick-and-mortar store, you just identify the origin of the supply. In other cases, you need to apply special rules to figure out how to apply taxes to the products you sell.
Types of Supplies
The law provides four different sets of rules to determine the place of supply. Which rule you follow all comes down to the type of goods or services you supply: tangible goods, services, intangible personal property, and real property. Before you figure out how the place of supply rules affect you, you need to know which type of supplies you’re selling.
Tangible Goods, Intangible Personal Property, and Real Property
When it comes to tangible goods, intangible personal property, and real property, you often focus on where you deliver or use the items. The specific rules include:
- Tangible goods: When selling tangible goods, the delivery location of the goods proves the key element. The law considers the supply made in the province where the supplier delivers the property or makes it available to the buyer.
- Intangible personal property: The supply of intangible property, such as a licence to use copyrighted material, depends on the province where you use the material. Special rules apply when you use intangible personal property in several provinces.
- Real property: The supply of real property uses the property location’s province. If a supply involves property situated in more than one place, then the law deems each part of the supply a separate supply and charges taxes accordingly.
The rules get more complex when you provide services. In general, the taxes charged depend on the address of the recipient of the services. But exceptions exist if the recipient of the service has several addresses in different provinces. In those situations, the address that is most closely related to the service you’re providing becomes the deciding factor. The place of supply rules can also vary for certain specific types of services, such as transportation services, computer-related services, and internet access services.
Understanding the Place of Supply rules helps you figure out how to charge taxes on the goods and services you provide. QuickBooks Online can help you maximize your tax deductions. Keep more of what you earn today.