The GST/HST registration rules for non-residents of Canada are more complex than for residents. In fact, there are two sets of rules.

The first set of “special rules” applies to non-residents who make more than $30,000 per year of sales in Canada to persons (mostly individual consumers) who are not registered for GST/HST. Goods delivered by mail or courier from a place outside Canada are excepted. An article discussing these special rules will be published soon.

This article deals with the second set of “general rules”, which apply in all other cases.

The general GST/HST registration rules for non-residents

A non-resident is required to register for GST/HST if its worldwide taxable supplies (generally, sales) exceed $30,000 and

(a)   it is carrying on business in Canada[i], or

(b)   it has a permanent establishment in Canada through which it makes supplies.

In most situations, a non-resident may register voluntarily before reaching these thresholds.

Carrying on business in Canada

Whether a non-resident is carrying on business in Canada is a question of fact. There is no “bright line” test. In its Policy Statement P-051R2, the Canada Revenue Agency (“CRA”) states that it considers the following factors to be relevant. The weight given to each depends on the nature of the business.

• the place where agents or employees of the non-resident are located;

• the place of delivery;

• the place of payment;

• the place where purchases are made or assets are acquired;

• the place from which transactions are solicited;

• the location of assets or an inventory of goods;

• the place where the business contracts are made;

• the location of a bank account;

• the place where the non-resident's name and business are listed in a directory;

• the location of a branch or office;

• the place where the service is performed; and

• the place of manufacture or production.

The CRA also states that “In general, a non-resident person must have a significant presence in Canada to be considered to be carrying on business in Canada. Generally, isolated transactions carried on in Canada as part of a business that is carried on by a non-resident person outside Canada may not result in the person being considered to be carrying on business in Canada, given that the above-noted factors will usually not be met to a sufficient degree.”

Many tax practitioners have criticized Policy P-051R2 as being more expansive than the common law established in income tax cases. However, this CRA policy has remained in effect since it was published in 2005.

Selected examples from P-051R2 are summarized at the end of this article.

Permanent establishment in Canada

A non-resident who has a permanent establishment in Canada is deemed to be resident in Canada in respect of activities carried on through that establishment[ii]. Consequently, the non-resident is required to register if its annual supplies from that establishment exceed $30,000.

The term “permanent establishment” is defined to mean[iii]

(a) a fixed place of business of the particular person, including

(i) a place of management, a branch, an office, a factory or a workshop, and

(ii) a mine, an oil or gas well, a quarry, timberland or any other place of extraction of natural resources,

through which the particular person makes supplies, or

(b) a fixed place of business of another person (other than a broker, general commission agent or other independent agent acting in the ordinary course of business) who is acting in Canada on behalf of the particular person and through whom the particular person makes supplies in the ordinary course of business;

The CRA has published Policy Statement P-208R which provides lengthy commentary on this definition with many examples.

Voluntary registration

A non-resident may register voluntarily if the non-resident

a)     regularly solicits orders for the supply of goods for export to, or delivery in, Canada;

b)     has entered into an agreement for the supply of services to be performed in Canada; or

c)      has entered into an agreement for the supply of intangible personal property to be used in Canada or that relates to real property situated in Canada, goods ordinarily situated in Canada or services to be performed in Canada.

The most common reason for registering is to be able to claim input tax credits (see below). Registration also allows the non-resident to avoid the cumbersome drop-shipment[iv] and input tax credit flow-through[v] rules.

Implications of registration

The main implication of registration is being required to collect GST/HST for taxable supplies made in Canada. On the invoice or other documentation, the non-resident discloses its GST registration number and either the amount of tax or a statement that the price includes GST/HST.

A registered non-resident must also file regular returns to account for the tax collected. In determining the “net tax” payable in those returns, the non-resident may deduct “input tax credits”, which are generally tax paid on purchases in Canada, and goods imported, that are attributable to taxable and zero-rated supplies made by the non-resident in Canada.

The rules for whether a supply is made in Canada or outside Canada are set out in section 142 of the Excise Tax Act (“ETA”). Goods supplied by way of sale are supplied in Canada where they are delivered or made available in Canada. Most services are supplied in Canada where they are performed wholly or partially in Canada. However, there are specific rules for certain types of services, such as telecommunication services and services in respect of real property and tangible personal property (goods). The CRA has published its commentary on these rules in Memorandum 3.3, Place of Supply.

The frequency for filing returns depends on the person’s “threshold amount”, which is generally the total annual consideration for taxable and zero-rated supplies made in Canada. The filing frequency is annual where the threshold amount is $1,500,000 or less, monthly where the threshold amount is greater than $6,000,000, and quarterly where the threshold amount is between those two figures. One may elect to file more frequently than required.

Becoming registered

The easiest method of applying for registration is to fill out and submit the online form on the CRA website. When you click on “Agree” at the bottom of the first page, you will be taken to a series of pages which duplicate the completion of the manual registration form. The CRA may call to ask a few questions. When they are satisfied that you are entitled to register and have provided all the relevant information, they will issue a Business Number. The GST registration number placed on invoices is the Business Number with an RT0001 suffix added. If the CRA is slow to respond, you can call them at 1-866-453-0452 to enquire about the status of your application.

Security requirements

 Unless they have a permanent establishment in Canada, a registered non-resident is required to post security with the CRA. The form of security and the amounts required are set out in the CRA’s Memorandum 2.6.

Selected CRA examples re carrying on business in Canada

The following are selected examples from P-051R2 on whether the CRA considers a non-resident to be carrying on business in Canada. Factors not mentioned occur outside Canada.

Where a non-resident IS carrying on business in Canada

·         A non-resident solicits sales of goods in the Canadian market, delivers goods to customers in Canada and has an independent sales representative in Canada who accepts orders and concludes sales contracts on behalf of the non-resident.

·         A non-resident solicits sales of goods in the Canadian market, delivers goods to customers in Canada and maintains an inventory of goods at a warehouse in Canada from which the non-resident arranges to have goods shipped to customers.

·         A non-resident solicits sales of goods in the Canadian market, hires a Canadian manufacturer to manufacture the goods, purchases the raw materials in Canada, and maintains an inventory of the goods at the manufacturer’s premises in Canada for delivery to customers in and outside Canada.

Where a non-resident IS NOT carrying on business in Canada

·         As a non-resident who does not solicit the sale of goods in the Canadian market receives orders from customers in Canada, the non-resident purchases the goods from a Canadian supplier and arranges for the supplier to deliver the goods to the customer.

·         A non-resident manufacturer of specialized industrial equipment solicits sales of the equipment in the Canadian market, delivers the equipment in Canada and installs the equipment in a customer’s premises over a short period of time.

·         A non-resident hires a Canadian manufacturer to manufacture goods on an as-ordered basis for export to non-resident customers and purchases the raw materials in Canada.