This article is to shed light on the age-old question – are the services I am providing to a non-resident exempt from tax or not? As is true of most questions relating to sales tax implications, there is no clear-cut answer. To answer this question, you need to contemplate several other questions first.
Zero-rated supplies
This term refers to goods and services that are taxable at a rate of 0%. Most taxable goods and services that are provided to a non-resident, including tangible personal property, services and intellectual property, are described in Part V of Schedule VI of the Excise Tax Act (Act). These goods and services would be given zero-rated consideration. More specifically, section 2, 5 to 10, 13, 14, and 17 to 23 of Part V of Schedule VI of the Act illustrate supplies that are zero-rated when received by a non-resident.
Non-resident determination
Subsection 123(1) of the Act defines a non-resident person as “not resident in Canada”. Furthermore, section 132 of the Act describes several guidelines for a person to be deemed a resident of Canada. Outside of these criteria, a person would be considered a non-resident of Canada. Generally, determining status requires the use of several legal principles, including but not limited to permanent establishments or deemed permanent establishments. In other instances, a resident of Canada having a permanent establishment outside of Canada may be considered a non-resident with respect to activities that are conducted through that establishment.
The determination of a supply made to a non-resident is the responsibility of the registrant supplier. Residence status is mandatory in determining if the supply can be zero-rated. The Canada Revenue Agency (CRA) has mandated that “satisfactory evidence” be provided to substantiate that the recipient of the good or service is a non-resident of Canada. Most registrants simply identify the recipient they are engaged with and their physical business location, which would not be sufficient proof of non-resident status. A due diligence defense would not be considered satisfactory evidence in case of audit; the supplier would be responsible to remit the taxes owed, in addition to any applicable penalty and interest.
The CRA has not created any prescribed forms. However, GST/HST memorandum 4.5.1 outlines different examples of satisfactory evidence that would be accepted. Appendix A describes the documentation that the Department of Finance will generally accept as proof that the person is a non-
resident. Appendix B describes the documentation that the Department of Finance will generally accept as proof that the customer is both a non-resident and is not registered. This documentation should be dated and signed by the non-resident and be effective on the date of supply. The Department of Finance will also consider other forms of documentation as proof of non-residence and the non-registered status of the customer.
If you make sales to non-residents of Canada and you do not charge GST/HST, ensure you have this documentation in case the CRA comes knocking!
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