HST Place of Supply Navigating the Rules

Transcription

1 HST Place of Supply Navigating the Rules

2 Presenters Bruce Goudy Partner, Indirect Tax Ernst & Young LLP Tel: Mary Anne McMahon National Advisor, Indirect Tax Ernst & Young LLP Tel:

3 Agenda Introduction Legislation Challenges Rules, rules and more rules (and exceptions) Tangible personal property Real property Services Intangible personal property Issues and tips

4 Legislation ETA Supply in Canada is deemed to be made in a particular province based on rules in Schedule IX Interpretation rules and particular rules for TPP, IPP, real property, services (general), transportation services, postage, telecommunication services Or Prescribed under draft New Harmonized Value-added Tax System Regulations (s. 2-33) Old GST/HST Place of Supply Regulations repealed New draft regulations are mix of old rules still in effect and new ones introduced in 2010

5 Issues Characterizing a supply Service vs. intangible personal property (IPP) Priority of rules - general services vs. specific services Testing the criteria Contracting, most closely connected, most contact addresses Primarily in harmonized provinces Greatest proportion in a particular province IPP geographic limitations on usage Ordinarily situated in a province Documenting & retaining analysis & support

6 Sale of Tangible Personal Property Legal delivery Supply made in the province where supplier delivers or makes the property available to the recipient Deemed delivery Supplier ships property to province specified in contract for carriage Supplier transfers possession of property to common carrier or consignee retained by the supplier on behalf of the recipient to ship to a destination in a particular province Supplier sends property by mail or courier to an address in that province

7 Lease of Tangible Personal Property Short term leases (< 3 months) Same rules as Sales of TPP tax rate based on where goods delivered or made available, or sent by mail or courier No obligation for lessor to track movement after delivered or made available

8 Lease of Tangible Personal Property Long term leases (> 3 months) Each lease interval is a separate supply Property other than specified motor vehicles Ordinarily located when supply is made Lessor and lessee can agree on ordinary location Specified motor vehicles Province where vehicle is required to be registered Leased railway cars One time rule based on where property first delivered or made available Transitional rule for Ontario & British Columbia

9 Real Property Supply deemed to be made where property situated If situated in more than one province, allocate consideration Deemed separate taxable supplies in each province where property located No primarily test Deemed supplies for each lease interval

10 Services Priority of Rules MORE SPECIFIC RULES Customs brokerage services Litigation-related services Location-specific events services Repair, alteration services Trustee services (RRSP, RRIF, etc) or 976 services Computer-related or Internet access Air navigation services Passenger transportation services Freight transportation services Postage Telecommunication services LESS SPECIFIC RULES Services in relation to real property Services in relation to TPP Personal Services GENERAL RULES Use where Specific Rules do not apply

11 Services General Rules Apply in order Rule 1: Where address obtained in ordinary course of business If only one home or business address of the recipient, supply is made in that province If more than one address is obtained, supply is made in the province of the address most closely connected to the supply If no home or business address obtained but another address in a province is most closely connected to the supply, supply is made in that province (e.g., billing address which is not a known home or business address)

12 Services General Rules Rule 2: If no address obtained and Canadian element of service is performed primarily in participating provinces, supply is deemed to be made in the participating province where the greatest proportion of the Canadian element of the service is performed. Rule 3: If cannot determine where greatest proportion performed in Rule 2, service is performed in participating province with highest rate. If provinces have the same rate, use that rate. Rule 4: Supply is made in a non-harmonized province if Rule 1 does not deem the supply of the service to be made in a province, and the Canadian element of the service is not performed primarily (50% or more) in the participating provinces

13 Services General Rules Issues to consider Correct characterization of a supply is key General service or service with a specific rule Measuring primarily in participating provinces Measuring greatest proportion in a participating province Managing addresses database for CRA audit purposes - contracting address vs. most closely connected address vs. other type of address Contracting address and most closely connected address Per B-103, CRA recommendation - "usually the contracting address" only administrative guidance potential for dispute on audit if a better most closely connected address

14 Closely-connected Services General Rules Issues to consider Per CRA business address of the recipient from which the supplier is hired under the agreement for the supply (the contracting address) will generally be considered the address that is most closely connected with the supply. If the contracting business address of the recipient is not obtained, the address most closely connected with the supply would be the business address of the recipient that the supplier had the most contact with and that is most used by the supplier in connection with the supply.

15 Services in Relation to Real Property Less Specific Rules If real property is situated primarily in participating province Supply is made in province in which greatest proportion of property is located If greatest portions are equally situated in more than one participating province, supply is made in province with highest rate If situated less than primarily in participating provinces, 5% applies

16 Services in Relation to TPP Less Specific Rules If TPP situated primarily in participating provinces when the service is being performed supply is made in province where greatest proportion of that TPP situated If greatest proportions are equal, use highest rate If situated primarily in non-participating provinces, 5% applies Issues to consider Meaning of situated primarily physical size vs. value Caution - a more specific rule may apply - legal services, repair services

17 Personal Services Less Specific Rules All or substantially all of the services are performed in the presence of the individual to whom it is rendered Excludes advisory, consulting and professional services In the participating province where the Canadian element is performed primarily AND Equal or greater proportion is not performed in another participating province If equal, province with highest rate If same rate, business address of supplier

18 Services rendered in connection with litigation More specific rules Services in connection with criminal, civil or administrative litigation Services relating to litigation under the jurisdiction of a court or tribunal established under the laws of a province are supplied in that province Excludes services performed before litigation begins Issues to consider Includes services related to an appeal to the Supreme Court of Canada from a decision of a court or a tribunal established under the laws of a province Includes anything in connection with the litigation, e.g., expert s report If lawyer s services are rendered in connection with litigation and at the same time in relation to TPP situated in another participating province this rule takes priority over Services in relation to TPP rules Does not include litigation at the Tax Court, Federal Court, Federal Court of Appeal or Supreme Court where appeal relates to decision rendered by a federal court or tribunal

19 Services in relation to a location-specific event More specific rules Place of supply is province where event will be primarily (more than 50%) performed Location-specific rules take precedence over personal services rules Need to carefully differentiate between the two

20 Repairing, maintaining, cleaning TPP, etc. More specific rules No change from current rules Applies to supply of service of: repairing, maintaining, cleaning, adjusting or altering TPP, or producing a negative, transparency, photographic print or other photographic-related good Based on province where the supplier delivers the TPP to the recipient after the service is performed Issues to consider Supplier must receive TPP of another person Definition of deemed delivery Takes priority over services in relation to TPP

21 Services More specific rules Premium rate telephone services (1-900 or 976) made in the province in which the telephone call originates Trustee services re RRSP, RRIF, RESP, RDSP, etc. Based on mailing address of annuitant, subscriber or holder Computer-related services and Internet Access Different rules for single vs. multiple final recipients Whether supplier maintains sufficient information to determine location where services accessed Customs brokerage services Based on province where goods released

22 Services More specific rules Air navigation services A supply is made in a province if the leg of the flight originates in that province Passenger transportation Place of supply determined by Whether there is a continuous journey Whether a ticket or voucher is issued Location of origin, termination and stopovers Special rules for TPP and services supplied during international flights/voyages, baggage and ticketing/reservation services

23 Intangible Personal Property Location of recipient now more important Where Canadian rights can be used Place of negotiation is less important Specific rules take precedence over general rules

24 Intangible Personal Property Priority of rules SPECIFIC RULES GENERAL RULES IPP that relates to real property IPP that relates to TPP No primary location of use Primarily in participating provinces Primarily in non-participating provinces

25 IPP Related to Real Property Specific rules Tax rate based on where real property primarily situated non-participating provinces, 5% applies participating provinces, HST rate based on province with greatest proportion of real property If situated equally in participating provinces, highest rate No allocation Issues to consider How to measure primarily How to measure greater proportion Whether certain IPP really has limitations

26 IPP Related to TPP Specific rules Ordinary location of property supplier and the recipient mutually agree If ordinary location primarily in participating provinces, HST will apply: HST rate is based on province where greatest proportion of TPP is ordinarily located If ordinarily located equally in participating provinces, use highest HST rate

27 IPP - Primarily in Participating Provinces General rules Where Canadian rights can only be used primarily in HST provinces AND where province of greatest use cannot be determined Apply rules 1 to 3 in order: Rule 1 Rule 2 Rule 3 Supply is made in a province if value is $300 or less, made through a PE of supplier in the province in the presence of an individual who is, or acts on behalf of, the recipient, or through a vending machine situated in the province, and the IPP can be used in the province. If Rule 1 does not apply, the province of supply is determined by using the address rules applicable to services as long as the IPP can be used in the province in which the address is located. If Rule 1 and 2 do not apply, the province of supply is the province with the highest rate among provinces in which the IPP can be used.

28 IPP - Primarily Outside Participating Provinces General rules If Canadian rights can only be used primarily outside participating provinces, 5%

29 IPP No Primary Location of Use General rules Where no limitations on where Canadian rights can be used and primary location cannot be determined Same 3 rules Rule 1 Rule 2 Rule 3 Supply is made in a province if value is $300 or less, made through a PE of supplier in the province in the presence of an individual who is, or acts on behalf of, the recipient, or through a vending machine situated in the province, and the IPP can be used in the province. If Rule 1 does not apply, the province of supply is determined by using the address rules applicable to services as long as the IPP can be used in the province in which the address is located. If Rule 1 and 2 do not apply, the province of supply is the province with the highest rate among provinces in which the IPP can be used.

30 NEXT STEPS Implement clear processes to manage place of supply risk Document & retain the decision & supporting analyses Addresses - most closely connected, most contact, other, etc. Primarily in harmonized provinces Greater proportion in a harmonized province Geographic limitations on where IPP can be used Characterization of supplies e.g., IPP vs. services Priority of rules general vs. less specific vs. more specific Ordinarily situated in province at a particular time Training & support for team members Periodic review and testing

31 Disclaimer (c) 2012 Ernst & Young LLP. All rights reserved. This presentation contains high-level information in summary form. Please contact EY or another professional advisor to discuss these matters in the context of your particular circumstances. We accept no responsibility for any loss or damage occasioned by your reliance on information contained in this presentation.