Cross Border Challenges and Continental Opportunities

The Application of Canadian Value-The Application of Canadian Value-Added Taxes to Cross Border Added Taxes to Cross Border

TransactionsTransactions

Introduction

GST introduced January 1, 1991GST introduced January 1, 1991

Comprehensive tax baseComprehensive tax base

National in scopeNational in scope

Collection and credit mechanismCollection and credit mechanism

Cross Border Considerations

GoalsGoals benefit Canadian exportersbenefit Canadian exporters immunize non-residents doing immunize non-residents doing

incidental business in Canadaincidental business in Canada protect Canadian business from protect Canadian business from

unrecoverable taxunrecoverable tax maintain integrity of systemmaintain integrity of system

GST Basics

Most goods and services taxableMost goods and services taxable

exempt suppliesexempt supplies

zero-rated supplieszero-rated supplies

GST Basics

Tax supplies made in CanadaTax supplies made in Canada

7% rate (15% in N.S., N.B. or Nflnd.)7% rate (15% in N.S., N.B. or Nflnd.)

GST Basics Register suppliers as tax collectorsRegister suppliers as tax collectors

Permit limited voluntary registrationPermit limited voluntary registration

Allow credits for tax paid if commercial activityAllow credits for tax paid if commercial activity

Allow partial rebates to public sector bodies with Allow partial rebates to public sector bodies with no commercial activityno commercial activity

GST Basics

Collect tax at border on imported goodsCollect tax at border on imported goods

Imported intangibles or services trigger Imported intangibles or services trigger self-assessmentself-assessment

Cross-Border Transactions Supplies made in, or outside, CanadaSupplies made in, or outside, Canada

Imports into, or exports from, CanadaImports into, or exports from, Canada

Transactions between Canadian businesses Transactions between Canadian businesses flowing through a non-residentflowing through a non-resident

Goods temporarily in or out of CanadaGoods temporarily in or out of Canada

Supplies Made in Canada

Goods delivered or made available in Goods delivered or made available in CanadaCanada

Leased goods first made available in Leased goods first made available in CanadaCanada

Intangibles supplied for use in whole or in Intangibles supplied for use in whole or in part in Canadapart in Canada

Supplies Made in Canada Services performed in whole or in part in CanadaServices performed in whole or in part in Canada Real property situated in CanadaReal property situated in Canada Telecommunications:Telecommunications:

emitted and received in Canadaemitted and received in Canadaemitted or received in Canada and the billing emitted or received in Canada and the billing

location for the telecommunications facility location for the telecommunications facility is located in Canadais located in Canada

Supplies Made Outside Canada

If a supply is not made in Canada, no GST If a supply is not made in Canada, no GST will applywill apply

Non-resident override ruleNon-resident override rule

Imported Goods

Taxable on value for customs dutiesTaxable on value for customs duties

Payable by importer of recordPayable by importer of record

Potential for double tax if goods supplied Potential for double tax if goods supplied by registered non-residentby registered non-resident

Imported Goods

Exemptions are available for goods not Exemptions are available for goods not intended to be taxedintended to be taxed

Imported Goods

Relief is available in cases of temporary Relief is available in cases of temporary presence or usepresence or use

Imported Goods

Rebates of tax are available for goods Rebates of tax are available for goods returned or not as orderedreturned or not as ordered

Imported Services or Intangibles

Services and intangibles acquired outside Services and intangibles acquired outside Canada escape assessment at borderCanada escape assessment at border

Canadian purchasers must self-assess to Canadian purchasers must self-assess to equalize playing field for domestic equalize playing field for domestic supplierssuppliers

Imported Services or Intangibles

Exceptions where:Exceptions where:

full ITCs could have been claimed if full ITCs could have been claimed if GST had been payableGST had been payable

the supply relates to activities or the supply relates to activities or assets outside Canadaassets outside Canada

Exports

Exports of goods and services to non-Exports of goods and services to non-residents are zero-ratedresidents are zero-rated

Specific zero-rating provisionsSpecific zero-rating provisions

Exports

General zero-rating of services for non-General zero-rating of services for non-residentsresidents

Exports

Transportation servicesTransportation services

Financial servicesFinancial services

Exports

Goods exported for processing and return to Goods exported for processing and return to CanadaCanada

Tax levied on value-added and additional Tax levied on value-added and additional duty, if anyduty, if any

Exports

Rebates:Rebates: goods exported within 60 days goods exported within 60 days short-term accommodationshort-term accommodation non-resident exhibitors, sponsors and non-resident exhibitors, sponsors and

organizers of foreign conventionsorganizers of foreign conventions installation services installation services

Exports

Export trading houses Export trading houses

Export distribution centresExport distribution centres

Exports

Export trading houses Export trading houses

Export distribution centresExport distribution centres

Imports by Unregistered Non-residents

Flow-through of taxes paidFlow-through of taxes paid

to Canadian purchaserto Canadian purchaser

to Canadian service providerto Canadian service provider

Purchases from Unregistered Non-residents Drop shipments on behalf of non-residentsDrop shipments on behalf of non-residents

Canadian supplier of goods must collect tax Canadian supplier of goods must collect tax from non-residentfrom non-resident

Canadian supplier of commercial services Canadian supplier of commercial services must collect tax from non-resident on fee for must collect tax from non-resident on fee for services services andand cost of goods cost of goods

Purchases from Unregistered Non-residents Drop shipment relief:Drop shipment relief:

flow-through of taxes paid to flow-through of taxes paid to Canadian supplierCanadian supplier

goods distributed free by non-residentgoods distributed free by non-resident

Purchases from Unregistered Non-residents Drop shipment relief (cont’d)Drop shipment relief (cont’d)

delivery to registered Canadian delivery to registered Canadian consigneeconsignee

goods subsequently exportedgoods subsequently exported

Purchases from Unregistered Non-residents Drop shipment relief (cont’d):Drop shipment relief (cont’d):

if goods are not used in commercial if goods are not used in commercial activity, self-assessment is requiredactivity, self-assessment is required