Finance Canada
Harmonized Sales Tax - Technical Paper: 4


4. Tax on Supplies Made in a Participating Province

Basic approach

The HST will apply to goods, services and intangible personal property consumed, used or supplied in the participating provinces. Thus, all registrants will be required to collect HST on supplies made in participating provinces unless the supplies are zero-rated or exempt. The application of HST to all taxable interprovincial supplies made in the participating provinces will improve the effectiveness of the taxation of interprovincial sales at the provincial level and ensure a level playing field for businesses supplying goods or services in participating provinces.

Registrants will continue to collect tax at the 7-per-cent GST rate on taxable supplies made in Canada that are not made in a participating province.

Rules will be put in place to determine whether or not a supply is made in a participating province. These place-of-supply rules will be complemented by rules requiring self-assessment of the provincial component of the HST where tax at the harmonized rate has not been charged on goods and services brought into the participating provinces from elsewhere for consumption, use or supply in the participating provinces.

The place-of-supply rules are intended to be simple for businesses and consumers to understand and comply with. For most businesses and for most transactions, only the general rules dealing with the supply of property or services will be relevant. Other rules are provided to deal with less common cases in order to avoid double taxation and to limit the potential for tax avoidance. Also, the place-of-supply rules have been designed to minimize the circumstances in which the application of HST will influence decisions to purchase goods and services in or outside a participating province.

In determining whether a supply is made in or outside a participating province, specific rules will apply depending on the nature of the supply. This chapter provides place-of-supply rules for the following types of supplies:

Special rules are provided for supplies of particular kinds of goods and services:

Supplies of tangible personal property

Supplies of tangible personal property by way of sale

A supply by way of sale of tangible personal property will be considered to be made in a particular participating province if the property is delivered or made available in that province to the recipient of the supply.

A supply by way of sale of tangible personal property will also be considered to be made in a given participating province if the vendor ships the property to the province or transfers the property to a common carrier retained by the vendor on behalf of the purchaser for shipment to that province.

Further, a supply by way of sale of tangible personal property will be considered to be made in a particular participating province if the vendor transfers the property to a courier, or places the property in the mail, for shipment to that province.

Example 4-5

A mail-order company located in Victoria, British Columbia, sells seeds to customers across Canada. The company places seed packets in the mail for delivery to its customers in the participating provinces. These supplies will be regarded as made in the participating provinces, and HST will apply.

Similarly, a supply by way of sale of tangible personal property will be considered to be made in a given non-participating province if the property is delivered or made available in that province to the recipient of the supply.

Also, a supply by way of sale of tangible personal property will be regarded as made in a particular non-participating province if the vendor ships the property to the non-participating province or transfers the property to a common carrier retained by the vendor on behalf of the purchaser for shipment to that province.

Finally, a supply by way of sale of tangible personal property will be considered to be made in a given non-participating province if the vendor transfers the property to a courier, or places the property in the mail, for shipment to the non-participating province.

Example 4-8

A mail-order company located in Corner Brook, Newfoundland sells CD ROMs to customers across Canada. The company mails the CD ROMs to its customers. The CD ROMs sent by mail to customers in non-participating provinces will be subject to tax at the 7-per-cent GST rate.

Supplies of tangible personal property
otherwise than by way of sale

Rentals

For purposes of the place-of-supply rules, a supply by way of lease, licence or similar arrangement will be regarded as a "rental" if the rental is for three months or less.

A supply of tangible personal property by way of rental will be considered to be made in a particular participating province if possession or use of the property is given or made available in that province to the recipient of the supply.

A supply of tangible personal property by way of rental will also be considered to be made in a particular province where:

Leases

Supplies of tangible personal property by way of lease, licence or similar arrangement that are not "rentals", as defined above, will be treated as a series of separate supplies for each period (i.e. "lease interval") to which a particular payment is attributable.

Each such supply will be considered to be made in a particular participating province if the ordinary location of the property, as determined at the beginning of the lease interval, is in that province.

Similarly, a supply of tangible personal property by way of lease, licence or similar arrangement will be regarded as made in a given non-participating province and, therefore, subject to tax at the 7-per-cent GST rate, if the ordinary location of the property, as determined at the beginning of the lease interval, is in that province.

Tangible personal property removed
from the participating provinces

A rebate will, in certain circumstances, provide for the recovery of the provincial component of the HST paid on goods that are supplied in a participating province but subsequently removed from the participating province to a non-participating province. This will help ensure that businesses located in participating provinces are not at a disadvantage relative to competitors in non-participating provinces when selling goods to purchasers that are not entitled to full input tax credits. Chapter 6 provides details about this rebate.

To enhance the international competitiveness of businesses located in the participating provinces, the zero-rating provisions that currently apply in respect of goods exported from Canada will apply for HST purposes. In addition, the rebates available to non-residents of Canada for exported goods and certain services will apply to the harmonized tax. Additional details regarding taxable supplies made in a participating province for export from Canada are provided in Chapters 8 and 10.

Supplies of services

General rule for supplies of services

All or substantially all of the service is
performed in a participating province

Generally, a supply of a service will be regarded as made in a particular participating province if all or substantially all of the service is performed in that province. This will mean that, in the vast majority of cases, the place of supply will correspond to where the supplier is established. For example, a service of repairing an automobile or of cutting a person's hair in a particular participating province will be regarded as supplied in that province and will be subject to HST.

Conversely, a supply of a service will be regarded as made in a non-participating province and subject to tax at the 7-per-cent GST rate if all or substantially all of the service is performed in that province.

A supply of a service performed partly in and partly outside of Canada is regarded as supplied in Canada. For HST purposes, such a supply will be regarded as made in a given participating province if all or substantially all of the portion of the services performed in Canada are performed in that province.

The general place-of-supply rule for services is described in terms of all or substantially all of the service being performed in a particular province. However, it is also the case that a supply of a service will be subject to HST if all or substantially all of the service is performed in the three participating provinces. The treatment of services performed in more than one province is discussed in the next section.

Services partly performed in a participating province

The general place-of-supply rule for services will not apply where a significant part (i.e. 10 per cent or more) of the service is performed in each of two or more provinces.

The place of supply of the audit service described in Example 4-13 cannot be determined under the general rule because all or substantially all of the service is not performed in Nova Scotia or any other particular province.

A special place-of-supply rule is required in these circumstances. The supply will be regarded as made in a particular province if that is the location of the permanent establishment of the supplier at which the individual principally involved in negotiating the agreement for the supplier ordinarily works or to which the individual ordinarily reports. If the individual works out of, or reports to, a permanent establishment of the supplier that is located in a participating province, as in Example 4-13, HST will be collected, subject to the override rule described below. On the other hand, if the individual works out of, or reports to, a permanent establishment of a registrant supplier located in a non-participating province or outside Canada, as in Example 4-14, the 7-per-cent GST rate will apply, again, subject to the override rule described below.

However, an override rule will address the situation where the individual principally involved in negotiating the agreement for the supplier ordinarily works out of, or reports to, a permanent establishment of the supplier located in a particular province, and all or substantially all of the services relating to the supply that are performed in Canada are performed in other provinces. The override rule will also apply where that permanent establishment of a registrant supplier is located outside Canada, and all or substantially all of the services are performed in Canada. In these circumstances, the supply will be deemed to be made in a participating province if the services performed in Canada are performed primarily in the participating provinces. The supply will be deemed to be made in a non-participating province if the services performed in Canada are performed primarily in the non-participating provinces.

If, in Example 4-15, a significant portion, for example, 30 per cent, of the services were performed in Ontario with the remaining 70 per cent distributed evenly among the participating provinces, the supplier would collect tax at the 7-per-cent GST rate. However, the self-assessment rules described in Chapter 5 may apply to the purchaser in certain circumstances.

If, in Example 4-16, a significant part of the service were performed in Nova Scotia, the agency would be required to collect the 15-per-cent HST. In these circumstances, if the recipient of the supply were a registrant, the recipient would be entitled to an input tax credit to the extent that the service is consumed or used in the recipient's commercial activities. If the services were acquired for consumption or use primarily outside the participating provinces, the rebate for services outlined in Chapter 6 may apply.

Supplies of real property and supplies
of services in relation to real property

General rules

Supplies of real property

A supply of real property will be regarded as made in a particular participating province if the real property in Canada is situated entirely in that province. For example, the sale of a warehouse situated in Goose Bay, Labrador will be subject to HST.

Conversely, a supply of real property will be regarded as made in a particular non-participating province if the real property in Canada is situated entirely in that province. In such a case, tax will apply at the 7-per-cent GST rate.

Supplies of services in relation to real property

In the case of a supply of a service in relation to real property, the supply will be regarded as made in a particular participating province if all or substantially all of the real property in Canada is situated in that province. For example, a service of painting the above-noted warehouse in Goose Bay will be subject to HST.

Conversely, a supply of a service in relation to real property will be regarded as made in a particular non-participating province if all or substantially all of the real property in Canada is situated in that province. In such a case, tax at the 7-per-cent GST rate will apply.

Realproperty situated partly in and
partly outside a participating province

Supplies of real property

The general place-of-supply rule for supplies of real property will not apply where the real property is situated partly in and partly outside a particular participating province. For example, a single supply of a right to use campgrounds situated across Canada will not be deemed, under the general rules, to be in a particular province.

Where a single taxable supply of real property includes property situated in and outside a particular participating province, a payment for the supply will be regarded as consideration for separate supplies to the extent that the real property is situated in different provinces. HST will be calculated on the value of the consideration for the supply reasonably attributable to the property situated in the participating provinces. Tax at the 7-per-cent GST rate will be payable on the remaining consideration.

Supplies of services in relation to real property

A single supply of a service in relation to real property situated partly in and partly outside a given participating province may not be deemed, under the general place-of-supply rule for services in relation to real property, to be made in a particular province. In such a situation, the supply will be regarded as made in a particular province if that province is the location of the permanent establishment of the supplier at which the individual principally involved in negotiating the agreement for the supplier ordinarily works or to which the individual ordinarily reports. If the individual ordinarily works out of, or reports to, a permanent establishment of the supplier that is located in a participating province, the HST will apply subject to the override rule described below. On the other hand, if the individual ordinarily works out of, or reports to, a permanent establishment of a registrant supplier located in a non-participating province or outside Canada, the 7-per-cent GST rate will apply, again, subject to the override rule.

An override rule will address the situation where the individual principally involved in negotiating the agreement for the supplier ordinarily works out of, or reports to, a permanent establishment of the supplier located in a particular province and all or substantially all of the real property in respect of which the services are performed is not situated in that province. The override rule will also apply where that permanent establishment of a registrant supplier is located outside Canada, and all or substantially all of the real property is situated in Canada. The supply will be deemed to be made in a participating province if the real property in Canada relating to the supply is situated primarily in the participating provinces. The supply will be deemed to be made in a non-participating province if the real property in Canada relating to the supply is situated primarily in the non-participating provinces.

Supplies of intangible personal property

General rule

In general, a supply of intangible personal property, such as a franchise right, is regarded as made in Canada if it relates to:

In these circumstances, the supply will be regarded as made in a particular participating province if:

Intangible personal property for use partly in,
or relating partly to, a participating province

If the general rule above does not apply, the supply of intangible personal property will be regarded as made in a particular province if that is the location of the permanent establishment of the supplier at which the individual principally involved in negotiating the agreement for the supplier ordinarily works or to which the individual ordinarily reports. If the individual works out of, or reports to, a permanent establishment of the supplier that is located in a participating province, the HST will be collected, subject to the override rule described below. On the other hand, if the individual works out of, or reports to, a permanent establishment of a registrant supplier located in a non-participating province or outside Canada, the 7-per-cent GST rate will apply, again, subject to the override rule.

An override rule will address the situation where the individual principally involved in negotiating the agreement for the supplier ordinarily works out of, or reports to, a permanent establishment of the supplier located in a particular province in which none or an insignificant portion of the rights can be exercised, either none or an insignificant amount of the real property or tangible personal property relating to the intangible personal property is situated, or none or an insignificant amount of the services are to be performed. The override rule will also apply where the permanent establishment of the registrant supplier is located outside Canada, and all or substantially all of the rights can be used only in Canada.

In these circumstances, the supply will be deemed to be made in a participating province if the rights exercisable in Canada must be exercised primarily in the participating provinces; the real property or tangible personal property in Canada relating to the intangible personal property is situated primarily in the participating provinces; or the services performed in Canada relating to the intangible personal property are to be performed primarily in the participating provinces.

On the other hand, the supply will be deemed to be made in a non-participating province if the rights exercisable in Canada must be exercised primarily in the non-participating provinces; the real property or tangible personal property in Canada relating to the intangible personal property is situated primarily in the non-participating provinces; or the services performed in Canada relating to the intangible personal property are to be performed primarily in the non-participating provinces.

A special rule will apply in the case of supplies to individuals of memberships that confer rights exercisable in more than one province, including a participating province. This rule is described in the section on specified services and specified intangible personal property.

Services and intangible personal property supplied
in participating provinces, but primarily
for consumption, use or supply elsewhere

A rebate will provide for the recovery of the provincial component of the HST paid that is not otherwise recoverable through the input tax credit mechanism and that has been paid on supplies of services and intangible personal property made in a participating province, but that are acquired primarily for consumption, use or supply in non-participating provinces. This provision will help ensure that suppliers located in participating provinces are not at a disadvantage relative to competitors in non-participating provinces when providing services or intangible personal property to purchasers that are not entitled to full input tax credits. Chapter 6 contains details about this rebate.

To enhance the international competitiveness of businesses located in the participating provinces, the current zero-rating provisions will apply to supplies of services and intangible personal property made in the participating provinces for export from Canada. Additional details regarding taxable supplies made in a participating province for export from Canada are provided in Chapter 8.

Specified services and specified
intangible personal property

The place where certain services are performed or intangible personal property can be used may have no more than an incidental relationship to where the services or rights are actually consumed or used.

In order to minimize the impact of the HST on the decisions of purchasers with respect to where to acquire services and intangible personal property that cross provincial boundaries, the place of supply of certain specified services and intangible personal property will be determined according to special rules. These rules will protect the competitive position of businesses located in participating provinces.

Supplies to individuals of memberships that confer rights exercisable in more than one province, including a participating province, will be regarded as supplied in the province in which the individual is resident.

For the purposes of this rule, the residence of the recipient will be deemed to be the recipient's mailing address.

The place of supply of a service supplied by means of a 1-900 telephone call will be determined based on the province in which the call originates.

Also, a special rule will be introduced for supplies of cleaning, adjustment, alteration, maintenance, repair or photo finishing services in respect of tangible personal property where the property is delivered to the supplier of the service in a particular province and the supplier arranges for the service to be performed in another province. The supply of the service will be regarded as made in a particular province if that is the location of the permanent establishment of the supplier at which the individual principally involved in negotiating the agreement for the supplier ordinarily works or to which the individual ordinarily reports.

The legislation will provide authority to prescribe additional services and intangible personal property that may require special place-of-supply rules.

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