Non-residents often act as importer of record for goods brought into Canada. They pay any duties owing plus, in most cases, the 5% federal component of GST. Non-residents who are registered for GST generally recover this tax as an input tax credit. However, the majority of non-resident importers are not registered.
This article discusses:
- the general GST registration rules for non-residents;
- special rules that allow an unregistered non-resident to recover GST paid on importation by passing the right to an input tax credit through to a Canadian customer or commercial service provider; and
- when a non-resident is required to register and collect GST on certain sales of goods in Canada (generally to Canadian consumers from a Canadian warehouse).
Where registration is required
Under the general rules, a non-resident is required to register if they carry on business in Canada or make supplies from a permanent establishment situated in Canada[i]. These non-residents recover the GST paid on importation by claiming input tax credits (where available) in the same manner as Canadian residents.
A non-resident who regularly solicits orders for the supply of goods for export to, or delivery in, Canada may register voluntarily[ii] and claim input tax credits. However, non-residents are often reluctant to register. They do not want to deal with the administration of collecting tax on sales made in Canada and filing returns. They also wish to stay off the radar of the Canada Revenue Agency.
Input tax credit transferred to the customer
There are special rules in section 180 of the Excise Tax Act (“ETA”) which allow an unregistered non-resident to indirectly recover tax paid on importation. These rules are useful but can be awkward to apply in practice. They provide relief in two situations: (a) where the goods are resold unused to a customer in Canada, and (b) where a taxable “commercial service”[iii] is performed on the goods in Canada by a registrant.
Section 180 allows the input tax credit to be claimed by the Canadian customer or commercial service provider provided that person obtains evidence that the tax was paid by the non-resident. This is generally a copy of the customs accounting document. Some importers are reluctant to provide this document because it may disclose their cost and may include unrelated import items.
A customer or commercial service provider who is unfamiliar with section 180 may be reluctant to apply it. They may not believe they could be entitled to an input tax credit for GST paid by someone else. Providing a copy of the section may not help because some of the language is obscure to anyone other than a tax practitioner.
Section 180 is easier to read when you take out the portions that are not relevant to a particular situation. For example, the portion that is relevant where the goods are sold to a customer in Canada reads as follows.
For the purposes of determining an input tax credit[iv] of …. a particular person, where a non-resident person who is not registered under Subdivision D of Division V
(a) makes a supply of tangible personal property to the particular person and delivers the property, or makes it available, in Canada to the particular person before the property is used in Canada by or on behalf of the non-resident person,
(b) has paid tax under Division III in respect of the importation of the property …. and
(c) provides to the particular person evidence, satisfactory to the Minister, that the tax has been paid,
the particular person shall be deemed
(d) to have paid, at the time the non-resident person paid that tax, tax in respect of a supply of the property to the particular person equal to that tax.
The term “particular person” refers to the Canadian customer of the non-resident. Where the conditions in paragraphs (a), (b) and (c) are satisfied, paragraph (d) “deems” that that the tax paid by the non-resident is paid by the customer. This deeming allows the customer to claim an input tax credit.
In my experience, reluctance by a customer to use section 180 may often be resolved by having the importer’s tax advisor communicate with the customer’s tax advisor, who then provides reassurance to the customer.
Electronic commerce rules
Under a complex set of “electronic commerce” rules that became effective on July 1, 2021, a non-resident who does not carry on business in Canada is required to register and collect GST if the non-resident makes more that $30,000 per year of “qualifying tangible personal property supplies” to persons in Canada that are not registered (generally consumers). A qualifying tangible personal supply includes any sale of goods made in Canada other than (a) an exempt or zero-rated supply or (b) a supply sent by mail or courier to an address in Canada from an address outside Canada.
The main intent of these rules is to ensure that GST is collected where sales are made by non-residents to Canadian consumers from a warehouse situated in Canada.
Where a non-resident is registered (either through these electronic commerce rules or voluntarily), the non-resident collects GST on qualifying tangible personal property supplies made directly (for example, through its own website) or through a “distribution platform operator” (for example, Amazon). The non-resident may claim input tax credits.
Where an unregistered non-resident makes qualifying tangible personal property supplies through a distribution platform operator, the distribution platform operator collects and remits GST/HST. Through a mechanism similar to section 180, the distribution platform operator may claim an input tax credit for GST paid by the non-resident on importation or purchase of the goods.
If you have any questions on the issues discussed in this article, please give me a call at 403-805-7945 or email me at firstname.lastname@example.org.
[i] Subsections 240(1) and 132(2) of the ETA.
[ii] Paragraph 240(3)(b) of the ETA.
[iii] A “commercial service” is defined to mean any service in respect of tangible personal property other than a financial service or a service of shipping the property supplied by a carrier.
[iv] Or a rebate under section 259 or 260.