Cross Border Challenges and Continental Opportunities

Cross Border Challenges and Continental Opportunities The Application of Canadian Value-Added Taxes to Cross Border Transactions

Introduction • GST introduced January 1, 1991 • Comprehensive tax base • National in scope • Collection and credit mechanism

Cross Border Considerations • Goals • benefit Canadian exporters • immunize non-residents doing incidental business in Canada • protect Canadian business from unrecoverable tax • maintain integrity of system

GST Basics • Most goods and services taxable • exempt supplies • zero-rated supplies

GST Basics • Tax supplies made in Canada • 7% rate (15% in N.S., N.B. or Nflnd.)

GST Basics • Register suppliers as tax collectors • Permit limited voluntary registration • Allow credits for tax paid if commercial activity • Allow partial rebates to public sector bodies with no commercial activity

GST Basics • Collect tax at border on imported goods • Imported intangibles or services trigger self-assessment

Cross-Border Transactions • Supplies made in, or outside, Canada • Imports into, or exports from, Canada • Transactions between Canadian businesses flowing through a non-resident • Goods temporarily in or out of Canada

Supplies Made in Canada • Goods delivered or made available in Canada • Leased goods first made available in Canada • Intangibles supplied for use in whole or in part in Canada

Supplies Made in Canada • Services performed in whole or in part in Canada • Real property situated in Canada • Telecommunications: • emitted and received in Canada • emitted or received in Canada and the billing location for the telecommunications facility is located in Canada

Supplies Made Outside Canada • If a supply is not made in Canada, no GST will apply • Non-resident override rule

Imported Goods • Taxable on value for customs duties • Payable by importer of record • Potential for double tax if goods supplied by registered non-resident

Imported Goods • Exemptions are available for goods not intended to be taxed

Imported Goods • Relief is available in cases of temporary presence or use

Imported Goods • Rebates of tax are available for goods returned or not as ordered

Imported Services or Intangibles • Services and intangibles acquired outside Canada escape assessment at border • Canadian purchasers must self-assess to equalize playing field for domestic suppliers

Imported Services or Intangibles • Exceptions where: • full ITCs could have been claimed if GST had been payable • the supply relates to activities or assets outside Canada

Exports • Exports of goods and services to non-residents are zero-rated • Specific zero-rating provisions

Exports • General zero-rating of services for non-residents

Exports • Transportation services • Financial services

Exports • Goods exported for processing and return to Canada • Tax levied on value-added and additional duty, if any

Exports • Rebates: • goods exported within 60 days • short-term accommodation • non-resident exhibitors, sponsors and organizers of foreign conventions • installation services

Exports • Export trading houses • Export distribution centres

Imports by Unregistered Non-residents • Flow-through of taxes paid • to Canadian purchaser • to Canadian service provider

Purchases from Unregistered Non-residents • Drop shipments on behalf of non-residents • Canadian supplier of goods must collect tax from non-resident • Canadian supplier of commercial services must collect tax from non-resident on fee for services and cost of goods

Purchases from Unregistered Non-residents • Drop shipment relief: • flow-through of taxes paid to Canadian supplier • goods distributed free by non-resident

Purchases from Unregistered Non-residents • Drop shipment relief (cont’d) • delivery to registered Canadian consignee • goods subsequently exported

Purchases from Unregistered Non-residents • Drop shipment relief (cont’d): • if goods are not used in commercial activity, self-assessment is required

Cross Border Challenges and Continental Opportunities