Importing and exporting is a key feature of the modern world, and because of the ease of importing and exporting we now have access to a wide variety of international products without leaving our homes. In Canada, there has been a significant increase of importing in the recent years by non-resident corporations, one of the reasons being the support received (Read: Beneficial Ways of Carrying Out International Trade in Canada, Non-Resident Importer Program and Canadian Taxation). It is important to remember that every country has its own set of tax rules associated with import and export activities, such as the GST/HST or PST in Canada, and that there are treaties in place that could affect certain products.
At AG Tax, we have found that businesses are jumping into the import/export game without adequate knowledge, and as a result are lacking the paperwork required for tax purposes. In this article, we have highlighted the basic GST/HST requirements of businesses carrying out export-import activities in Canada, and some of the additional tax rulings that importers and exporters will need to comply with.
What is GST/HST?
Goods and services tax (GST) is a tax applied to the supply of most goods and services in Canada, including real property and intangible personal property. Harmonized sales tax (HST) is applicable in some provinces instead of the GST, such as: New Brunswick, Nova Scotia, Newfoundland and Labrador, and Ontario and Prince Edward Island. HST is the provincial sales tax (PST), and GST combined. Each province will have either HST or a combination of a GST and PST.
GST/HST rates range from 5% (for GST on its own), to 15% (when HST applies), other than the 0% levied on specific goods and services.
Who Needs To Be GST/HST Registered, and Who is Responsible for Collecting Tax?
All businesses, including non-resident (foreign) individuals or corporations, providing taxable goods and services in Canada need to register and collect GST/HST. You are still required to register for GST/HST even if you are importing or exporting zero-rated supplies (goods and services are taxable at the rate of 0%). The exception to this is in the case of a small supplier (i.e. a supplier whose worldwide annual GST/HST taxable supplies are less than $30,000, or in case of a non-profit organization (charity etc.), $50,000). A small supplier may choose to register for GST/HST in order to recover any GST/HST paid on their purchases.
Most goods and services supplied in or imported into Canada are taxable supplies and are subject to GST/HST. GST/HST registrants must file returns on a regular basis, collect the tax on taxable supplies they make in Canada, and remit any resulting net tax owing.
Zero-rated and GST/HST Exempt Goods & Services
- Zero-rated goods and services are generally basic necessities, such as: dairy, vegetables, other agricultural products (example: grains, cotton, wool, and others), prescription drugs, or medical devices (example: hearing aids, dentures, blood sugar monitoring devices). Goods (other than beer and tobacco) that are ordinarily GST/HST taxable supplies may be zero-rated if they are exported from Canada to provide to foreign countries (For list of services, check here).
- GST/HST-Exempt Goods & Services are those goods and services which provide for the betterment of the people living in Canada, such as: medical/dental services by licensed physicians and doctors, day-care centers for children below age 14, bridge/road or ferry ways within Canada, vocational or artistic education services, legal aid services, providing used-residential housing long-term residential accommodation (of one month or more), and certain goods and services provided by non-profit organizations, governments, and other public service bodies.
Most of the remaining goods and services imported into Canada are subject to GST/HST. Many of these goods and services are subject to PST as well in provinces which subscribe to GST. This tax should be maintained securely and remitted to the CRA along with the annual income tax return and/or by instalments depending on your company’s filing requirements.
Additional Important Requirements For GST/HST
- GST/HST Registration Number/Business Number (BN): The BN is a unique nine-digit number assigned by the CRA to identify a specific business. It stretches into a 15 character alpha-numeric code to form a program account number, which is used to identify the programs and specific accounts of a business. An import and/or export business owner can complete their GST registration online, or by calling the CRA at 1-800-959-5525. You can also apply by filing Form RC1- Request for a Business Number and sending it to the CRA.
- Security Deposit: In order to be GST/HST registered, a nonresident needs to make a security deposit to the CRA, which ranges from $5,000 to $1 million (initially 50% of the estimated net tax payable by the non-resident importer/exporter irrespective of there being a refund situation, i.e. if the person’s net tax is -$6,000 (a refund situation, the person will still need to make a security payment of $3,000 (50% of the net tax) which could be increased or decreased in the subsequent years subject to annual review). This payment may be in the form of cash, certified cheque, money order and/or certain qualifying bonds. For a non-resident importer/exporter with or without a permanent establishment in Canada, and voluntarily applying for a GST/HST number or out of compulsion needs to make the security deposit in an amount and form required by the CRA; except if the non-resident person’s taxable supplies (including zero-rated supplies) in Canada do not exceed $100,000 annually, and whose annual net tax is between $3,000 remittable and $3,000 refundable. The Minister may retain any GST/HST refund or rebate if the non-resident person fails to maintain their security requirement.
- Maintain Records: The CRA requires GST/HST registrant export/import suppliers to provide their GST/HST customers with invoices, receipts, and any other documentation required by them to claim input tax credits (ITC) or rebates, and maintain copies of these for their records. Additionally, copies of invoices/receipts/etc. should also be maintained by the importer/exporter in order to claim ITCs or rebates for the GST/HST paid by them to their suppliers. These records should pertain to GST/HST collected, paid, and refunds and/or deductions to be received, and maintained for at least 6 years
An importer needs to file a GST/HST rebate application form to claim a rebate, which can only be obtained if all the required returns (under the Excise Tax Act (ETA), the Income Tax Act (ITA), the Excise Act, 2001, and the Air Travellers Security Charge Act (ATSCA)) have been filed. (Check here)
That being said, buyers of certain goods may be subject to ‘First Nations Tax’ (FNT) which is a 5% tax levied on goods like tobacco, alcohol, etc. FNT replaces the federal part of the HST. Similarly, the situation may vary depending upon the goods and services imported and exported, and the applicable provinces, which could further complicate the tax situation. Proper tax planning and strategizing could help minimize the tax burden of your business and help you be tax compliant. Therefore, it is advisable that as a resident or non-resident importer or exporter operating a business in Canada you should consult a cross-border tax professional before proceeding with any cross-border business activities to manage your tax affairs and avoid the risk of running into any tax compliance issues.
AG Tax LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canadian, and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice