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HST & The Place of Supply Rules

15/03/2010


Information on an extremely important component of the upcoming HST in BC and Ontario was recently released - The Place of Supply Rules. If you're asking "What rate do I charge?",  the rules have changed!

The place of supply rules establishes which province a "supply" occurs in and consequently the rate of GST/HST to charge. This will be important for companies that have activities or clients in more than one province since charging the wrong rate has severe implications, including an assessment of additional tax or unhappy clients.

HST has applied on the east coast of Canada since 1997; however, business has changed and this has prompted changes on the taxation of business activities. Many more businesses today rely on services being performed in more than one location and may involve technology as part of the solution.

The rules determining where sales and rentals of goods and real property occur have not changed. Goods delivered into an HST province will be taxed at the HST rate for that province. The location of real property determines the rate of GST/HST to apply. There are a few complications involving rentals of goods, but the rules are intuitive.

There are significant changes to where a service is deemed to be performed and therefore the rate to charge. In the past a service performed in Ontario would be taxed at Ontario's rate of GST/HST. Going forward, the business address of the recipient that is usually used for business purposes will determine the rate of GST/HST to charge. This is a fundamental change and it will require investigation on the part of service providers as well as substantial updates to the invoicing system. There are also special rules for services in relation to goods, services in relation to real property as well as others.  Additionally, there are special rules for passenger and freight transportation services, postage and mail delivery services and telecommunications services.

There are significant changes to the location of the supply (and therefore the rate of GST/HST to apply) for intangible personal property (IPP). Similar to services, these rules will also look to the location of the recipient. There are many special rules in the proposed place of supply rules for IPP, including IPP in relation to goods, services and real property.  Governments always struggle in keeping up with technology and how to tax it and so for supplies of IPP it is even more important to carefully study the new place of supply rules and to set up appropriate systems to apply the correct rate of GST/HST.

For more information on how the place of supply rules may impact your business, contact your local MNP advisor.