Rolfe, Benson Chartered Accountants

BC HST Proposed New Place of Supply Rules

Overview

 
With the introduction of the harmonized sale tax in BC and Ontario on 1 July 2010, the government has taken the opportunity to revise and substantially update the “place of supply” rules of the Excise Tax Act which determine where a supply of goods and services takes place – and hence whether the Goods and Services Tax (“GST”) or the Harmonized Sales Tax (“HST”) applies to a particular transaction. The most recent version of these new rules is described in detail (with many examples) in the June 2010 update of Technical Information Bulletin B-103: “Place of supply rules for determining whether a supply is made in a province”. These new rules are to be effective retroactively to supplies made after 30 April 2010 (assuming that they pass into law in their current form). Note that these rules apply in determining in which province of Canada a supply has taken place and thus whether GST or HST applies to the transaction; separate rules determine whether a supply takes place inside or outside of Canada and thus whether GST/HST applies at all.
 
In general one can make three different kinds of supplies: a supply of tangible personal property (including real estate), a supply of intangible personal property (such as rights to use computer software, memberships, or online subscriptions for example), or a supply of services. There are separate place of supply rules for each of these categories, and we will discuss below the rules which will normally apply to supplies in each case – though there are a number of special rules that apply in certain specific situations.
 
 

Tangible Personal Property (Goods)

 
In general, a supply of goods takes place in the province where ownership of the goods changes hands from supplier to customer. However, if a supplier ships the goods to the customer, provides the goods to a common carrier which he has retained, or sends the goods by mail or courier, then the supply is deemed to have been made in the province to which the goods are delivered. It does not matter if the supplier then charges the cost of the delivery to the customer on his invoice; it is the act of arranging the delivery which is important.
 
For example, a supplier in BC sells a product to a customer in Alberta and arranges for the goods to be shipped to the customer and then adds the cost of the shipping as a separate line item on his bill to the customer. The supply of the goods is deemed to be in Alberta and GST would be levied on the sale (and not HST).
 

Services

 
The rules for the supply of services are more complicated. In general a supply of services is made in the province if the supplier (in the normal course of his business) obtains a home or business address in Canada for his customer. If the supplier obtains addresses in more than one province, the supply is deemed to be made at the address most closely connected with the supply. However, if the rule above does not determine a place of supply, then if the Canadian portion of the services are primarily (more than 50%) carried out in HST provinces, then the supply is deemed to be made in the HST province where the greatest portion of the services were carried out. If the services were carried out equally between two HST provinces, then the services are deemed to be carried out in the province (of those two) with the highest HST rate. However if the first rule above does not determine a place of supply and the Canadian portion of the services do not primarily take place in HST provinces, then GST applies to the supply.
 
However, there are a number of common exceptions to this general rule.
 
  • If a service is in relation to a tangible property, then the supply is deemed to be made in the province where the property is located. If the property moves between provinces during the course of delivering the services, then the supply of the service will mirror the location of the property. That is, if the property is primarily in HST provinces while the service is rendered, then the service is deemed to be made in the HST province in which the greatest portion of the services are rendered.
 
  • Services which relate to a location-specific event (such as an artistic performance, conference, ceremony, or similar event) are deemed to be supplied in the province in which the event will take place. For example, if a wedding planner in BC organizes a wedding to take place in Alberta, then her services are deemed to take place in Alberta, even if all of the planning took place by telephone from her office in Vancouver.
 
  • For computer-related services, the supply of a service to a single customer is deemed to take place in the province where the customer accesses or avails himself of the service. For example, a supplier in BC provides technical support by email to a customer located in Alberta. The supply of the services is deemed to be made in Alberta. If the service is supplied to multiple customers and the supplier identifies addresses from which the customers access those services, then the normal rules for place of supply of services above apply.
 
  • There are other special rules for supplies of services provided by telephone, for transportation of goods or passengers, postage and mail delivery services, and telecommunication services.
 

Intangible Personal Property

 
The place of supply of intangible property will depend on where that intangible property can be used by the customer.
 
  • If the property can only be used primarily (more than 50%) in HST provinces, then the supply is deemed to be made in the HST province in which the greatest proportion of use of that property takes place. If such a province cannot be identified (if there are no limitations to the use of the property within the various HST provinces) then the supply is deemed to be made: at the establishment of the supplier if the value of the supply is less than $300 and the supply is made in the presence of the customer; else the supply is deemed to be made at the address of the customer (under the normal place of supply rules for services); else (if the previous rules cannot determine a province) in the HST province in which the property can be used with the highest HST rate.
 
  • If the property can only be used primarily (more than 50%) in non-HST provinces, then the supply is subject to GST.
 
  • In any other case (where there is no restriction on where the property can be used), then the three options above also apply. If the cost of the property is less than $300, the supply is deemed to be made at the establishment of the supplier if the supply is made in the presence of the customer. Otherwise the supply is deemed to be made at the address obtained by the supplier for the customer which is most closely connected with the supply. If neither of these rules determines a place of supply, then the supply is deemed to be made in the HST province with the highest rate in which the property can be used.
 
Again there are special place of supply rules which apply to intangible property related to tangible property (such as a right to buy real estate), or related to transportation services (such as a bus pass).
 
 
It should be clear that these rules are complicated and quite different from the rules which previously determined where a supply took place. Rolfe, Benson would be glad to assist in reviewing specific transactions to help determine where the supplies of goods or services are taking place, and we will let you know if there are any changes made to these draft laws before they are eventually enacted.