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Lower Canadian Dollar Can Increase Sales Tax Risk


While most Canadians cringe when they see the price of our dollar below 70 cents these days, some are seeing a benefit. We are seeing an influx of non-resident consumers and businesses snapping up goods at cheaper prices. Whether it is to purchase vehicles, electronics or other goods, the sales tax rules have not changed with a lower Canadian dollar.

While this will be good news for many to see increased sales in today’s struggling economy, we do have to be aware of the sales tax impact, since not all of these sales can escape the tax entirely, if at all. The overall intention of the GST/HST rules was to not have the tax apply to non-residents.

Foreign businesses are going to look to source goods and services from Canada because of our lower Canadian dollar. Foreign consumers are going to seek out Canadian goods for the same reason. Why pay more for something when you can buy it cheaper somewhere else? While foreign businesses can put themselves in a position of buying the goods within Canada, have them exported and not pay any GST/HST, consumers don’t get the same relief. We discuss both issues.

There are few exceptions where consumers buying items for their own personal use can acquire goods in Canada and bring them back across the border themselves without paying Canadian sales tax. The visitor rebate program for GST/HST purposes no longer exists. This was the only rebate on consumer goods that provided for recovery of the GST/HST for this type of situation.

There is a partial GST/HST rebate for tourists or tour operators, but this does not apply in respect of goods a non-resident wants to take back with them.

For PST purposes, if the consumer buys the taxable goods and brings them outside of the province themselves, the supplier is obligated to collect the PST. There may be some relief to obtain a refund of the PST in some cases. The process will depend on which PST province the purchase was made from.

One option for the non-resident consumers is to have the Canadian supplier export the goods and structure the sale such that the consumer does not take delivery in Canada. While there may be an added shipping cost to the consumer, the savings on Canadian sales taxes and currency exchange could be well worth the trouble.

For the business purchaser, they can acquire goods in Canada and achieve zero-rating for GST/HST and QST purposes if they meet the following conditions:

  1. The purchaser can’t be a consumer (e.g.; person buying for their own personal use or enjoyment);
  2. The purchaser exports the goods as soon as is reasonably possibly after taking delivery from the seller;
  3. The purchaser doesn’t acquire the goods for any supply / use in Canada before being exported;
  4. The property can’t have anything done (e.g.; a service) to it prior to being exported other than having them readied for the transportation. This condition is usually looking at like bulk shipments being re-palleted for shipping but the goods themselves are not altered, etc.
  5. The seller needs to obtain support the equipment left Canada. They likely want copies of the import documents into the U.S. or other countries as support they have made a zero-rated sale.

If the business customers can meet these conditions, the sale made in Canada gets treated as a zero-rated export. The business may have to only deal with the PST refund after the fact if it is still treated as a taxable sale in the particular PST province.

We would expect to see some pushback from consumers wanting to avoid paying sales taxes. It is worth some time to determine what obligations you as the seller have to make sure you are not on the hook for the sales taxes long after the customer has returned to their homeland.

To learn more about Indirect Taxes, contact Jeff Harrison, CPA, CMA, at 306.751.7998 or [email protected], or your local MNP Tax Advisor.