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GST/HST AND E-COMMERCE
Overview
E-commerce refers to all transactions conducted over computer networks. It means that only supplies of intangible personal property (IPP) and services are made through electronic commerce. For more information on how the GST/HST applies to supplies of IPP, services, and telecommunication services, see GST/HST rate to charge.
Generally, if you are registered for the GST/HST, you have to charge and collect the GST/HST on all taxable supplies of goods that you make in Canada (other than supplies that are zero-rated).
Generally, you may claim input tax credits in your GST/HST returns to recover the GST/HST paid or payable on purchases and expenses for consumption, use, or supply in your commercial activities. For more information, see Input tax credits.
GST/HST RATE TO CHARGE
INTANGIBLE PERSONAL PROPERTY
Generally, personal property is intangible if it cannot be seen and touched. Supplies of intangible personal property (IPP) (for example, a supply of software or a subscription to a website) usually do not involve physical interactions and do not require delivery. Factors that generally indicate that your supply made electronically is an IPP are:
- your supply is a right in a product or a right to use a product for personal or commercial purposes, such as intellectual property or a right to use intellectual property, or a right of a temporary nature (for example, a right to view, access or use a product while on-line)
- your product that has already been created or developed is provided
- your product is created or developed for a specific customer, but you keep ownership of the product
- your supply consists of a right to make a copy of a digitized product
You need to determine the place of supply to know which GST/HST rate to charge. If your supply is IPP, see GST/HST rates and place-of-supply rules.
EXAMPLES – PLACE OF SUPPLY FOR IPP
Example 1 – Supply made in Canada
You supply software in electronic format to a non-resident. There are no restrictions with respect to the place of use of the software. The supply of the software is deemed to be made in Canada, as it is a supply of intangible personal property that may be used in whole or in part in Canada. Your supply is subject to GST/HST.
Example 2 – Supply made in a province
You supply software by way of licence to a company in Quebec for use by its employees at its office in Ontario. The licence provides that the software can only be used from the office in Ontario. The Canadian rights in respect of the software can be used primarily in Ontario. Since it is a participating province, your supply is subject to HST at the rate of 13%.
GST/HST RATES AND PLACE-OF-SUPPLY RULES
GST/HST RATE TO CHARGE CUSTOMERS
To know which GST/HST rate to charge, a supplier has to know what type of supply they are making and where the supply is being made. The place where a supply is made is referred to as the place of supply.
A zero-rated supply, such as a sale of basic groceries, has a 0% GST/HST rate, regardless of the place of supply in Canada. Other taxable supplies have a:
- 5% GST rate if the supply is made in a non-participating province
- 13% HST rate if the supply is made in the participating province of Ontario
- 15% HST rate if the supply is made in any other participating province
For example, if a store in British Columbia makes a supply of a good such as a mattress to their customer in Ontario and delivers it to the customer in Ontario, the place of supply is Ontario and the supplier charges 13% HST on the sale.
To find out if a supply is made outside Canada, see GST/HST Memorandum 3.3, Place of Supply.
PLACE-OF-SUPPLY RULES
These place-of-supply rules determine where a sale, lease, or other taxable supply is made:
Goods and other tangible personal property
For place-of-supply rules:
- A floating home is tangible personal property, not real property.
- A mobile home that is not affixed to land is tangible personal property, not real property.
For the topic of “Goods and other tangible personal property”, we use the word goods to refer to all tangible personal property.
For the purposes of the GST/HST, “lease interval” means a period that is the whole or a part of the period during which possession or use of the property is provided under a lease, licence, or similar arrangement.
SALE OF GOODS – OTHER THAN SALES OF SPECIFIED MOTOR VEHICLES
If the supplier:
- delivers the goods (or makes them available) to the recipient, the place of supply is the province in which the goods are delivered
- mails the goods, or sends them by courier, the place of supply is the province to which the goods are sent
- ships the goods to a destination specified in the contract for its carriage, the place of supply is the province to which the goods are shipped
- transfers possession of the goods to a common carrier or consignee that the supplier retained on behalf of the recipient to ship the goods to a destination specified in the contract for its carriage, the place of supply is the province to which the goods are shipped
EXAMPLES – SALE OF GOODS – OTHER THAN SALES OF SPECIFIED MOTOR VEHICLES
EXAMPLE 1
A store in Ontario agrees to sell goods to a purchaser in Prince Edward Island. Based on the terms of delivery in the agreement for the sale of the goods, legal delivery of the goods to the purchaser occurs in Prince Edward Island. The place of supply is Prince Edward Island (a participating province) and the HST will apply at the Prince Edward Island rate.
EXAMPLE 2
A store in Alberta agrees to sell goods to a purchaser in Ontario. Based on the terms of delivery in the agreement for the sale of the goods, legal delivery of the goods to the purchaser occurs in Alberta. However, the supplier agrees to have the goods shipped to the purchaser in Ontario. Although legal delivery of the goods to the purchaser occurs in Alberta, delivery of the goods to the purchaser is considered to occur in Ontario because the supplier ships the goods to an address in Ontario. The place of supply is Ontario (a participating province) and the HST will apply at the Ontario rate.
WHEN GOODS ARE SUPPOSED TO BE DELIVERED BUT ARE NOT
Sometimes goods are sold and there’s an agreement to deliver them to an address but the goods are never delivered. In that case, the place of supply is the province where the goods were supposed to be delivered under the terms of the agreement.
SERVICES
For services, 1 of these 3 general rules usually determines the place of supply. If any of the other specific rules apply, these 3 general rules do not.
GENERAL RULE 1 – ADDRESS IN CANADA OBTAINED
The place of supply is the province of the recipient’s address if the supplier obtains that address in the normal course of business. If the supplier:
- obtains only one address that is a home or business address in Canada, the supplier uses that home or business address
- obtains more than one such address, the supplier uses the home or business address most closely connected with the supply
- does not obtain such an address, the supplier uses the address in Canada of the recipient that is most closely connected with the supply (this could happen if the supplier obtains the billing address of the recipient without knowing whether it is also their home or business address)
EXAMPLE – GENERAL RULE 1 – ADDRESS IN CANADA OBTAINED
A supplier in Quebec agrees to design the website of a company in Ontario. The service is performed entirely in Quebec. The business address of the recipient obtained by the supplier is in Ontario. Since the business address of the recipient is in Ontario, the place of supply is Ontario (a participating province) and the HST will apply at the Ontario rate.
GENERAL RULE 2 – NO ADDRESS IN CANADA OBTAINED
Rule 2a – Canadian part not performed primarily in participating provinces
The place of supply is a non-participating province if the Canadian part of the service is not performed primarily (more than 50%) in participating provinces.
Rule 2b – Participating province of the largest proportion
The place of supply is a participating province if the Canadian part of the service is performed primarily (more than 50%) in participating provinces and an equal or larger proportion of the Canadian part of the service is not performed in another participating province.
Rule 2c – Higher tax rate
If rule 2b does not determine the place of supply because the service is performed equally in 2 or more participating provinces, the place of supply will be the participating province with the highest HST rate of those provinces. If 2 or more of those provinces have the same highest tax rate, the place of supply is one of those provinces.
EXAMPLES – GENERAL RULE 2 – NO ADDRESS IN CANADA OBTAINED
Example 1 – Rule 2a – Canadian part not performed primarily in participating provinces
A business in Alberta specializes in website production and marketing services. Employees perform these services from the business address in Alberta. They receive and send all documents through email. They do not obtain an address for their clients.
Since the Canadian element of the service is not performed primarily in participating provinces, the place of supply will be that non-participating province (Alberta) and the GST will apply to the services.
Example 2 – Rule 2b – The participating province of the largest proportion
A business in Nova Scotia specializes in providing online editing and translation services. Employees perform these services from the business address in Nova Scotia. They receive and send all documents through email. They do not obtain an address for their clients.
Since the Canadian element of the service is performed primarily in participating provinces, and the participating province where the largest proportion of that service is performed is Nova Scotia, the place of supply is Nova Scotia (a participating province) and the HST will apply at the Nova Scotia rate.
PERSONAL SERVICES
The general rules do not apply to personal service. For these services, the following place-of-supply rules apply.
Generally, personal service is performed 90% or more in the presence of the individual, or the group of individuals, to whom it is rendered.
The place-of-supply rules for personal services do not apply to the supply of an advisory, consulting, or professional service. These services are usually subject to the general place-of-supply rules for services unless another specific rule applies to them.
Personal service rule 1 – Primarily in participating provinces
The place of supply is a participating province if the Canadian part of the personal service is performed primarily (more than 50%) in participating provinces, and an equal or larger proportion of the service is not performed in another participating province.
Personal service rule 2 – Not primarily in participating provinces
The place of supply is a non-participating province if the Canadian part of the personal service is not performed primarily (more than 50%) in participating provinces.
PERSONAL SERVICE RULE 3 – HIGHER TAX RATE
If the previous 2 rules do not determine the place of supply because the service is performed equally in 2 or more provinces, the place of supply is the participating province of those provinces with the highest HST rate. If 2 or more of those provinces have the same highest tax rate, the place of supply is one of those provinces.
EXAMPLES – PERSONAL SERVICES
Example 1 – Personal service rule 1 – Primarily in participating provinces
An individual gets his hair cut at a salon in Fredericton, New Brunswick. The place of supply is New Brunswick (a participating province) and the HST will apply at the New Brunswick rate.
Example 2 – Personal service rule 2 – Not primarily in a participating province
An individual gets a pedicure at a spa in Regina, Saskatchewan. The place of supply is Saskatchewan (a non-participating province) and the GST will apply to the service.