Retail Sales Taxation in Canada

RETAIL SALES TAXATION IN CANADA 1 RETAIL SALES TAXATION IN CANADA Contents • Overview of RST in Canada • 2008 Provincial Budget Developments • Common RST Compliance and Audit Issues • Recent Case Law 2 TAX RATES IN CANADA YT NT N/A NU HST 13% N/A N/A BC AB 7% SK MB QC N/A 5% 7% ON 7.5% PE 8% 10% GST 5% Provincial GST in Combined Province Rate Base GST/PST Rate British Columbia (BC) 7% No 12% Alberta (AB) N/A No 5% Saskatchewan (SK) 5% No 10% Manitoba (MB) 7% No 12% Ontario (ON) 8% No 13% Quebec (QC) 7.5% * Yes 12.875% New Brunswick (NB) N/A No 13% Nova Scotia (NS) N/A No 13% Prince Edward Island (PE) 10% * Yes 15.5% Newfoundland (NF) N/A No 13% Yukon (YT), NWT (NT), Nunavut (NU) N/A No 5% * Tax calculated on a GST-included basis 3 OVERVIEW OF RST IN CANADA Reference Materials • RBA Sales Tax ReviewTM, March 2005, “Self-Assessing Tax on Imports” • RBA Sales Tax Review™, March 2004, “The Hard Rules on Software” • Ontario Retail Sales Tax Guide Number 651, “Internet Related Services” • GST & Commodity Tax, Vol. VXIII, No. 5, June – July 2004, “Taxation of Services” • Ontario Retail Sales Tax Guide Number 519, “Insurance - General Information” • Common Audit Exposures, Chapter 36, “Bundled Goods and Services” • RBA Sales Tax ReviewTM , September 2002, “Provincial Sales Tax – When Must I Register?” • Ontario Tax Reporter, Number 470, July 2001, “The Retail Sales Tax Treatment of Real Property” • British Columbia Consumer Taxation Branch Bulletin SST 072, “Real Property Contractors” • Common Audit Exposures, Chapter 28, “Purchase Exemption Certificates” • RBA Sales Tax ReviewTM, September 2004, “Goods for Resale” • Ontario Retail Sales Tax Guide Number 400, “Manufacturers” • British Columbia Consumer Taxation Branch Bulletin SST 054 , “Manufacturers” • Ontario Retail Sales Tax Guide Number 214, “Transfer of Assets Between Related Persons” • RBA Sales Tax ReviewTM, September 2001, “Sales by and to Governments” • RBA Sales Tax ReviewTM, September 1999, “Sales to Status Indians” • Common Audit Exposures, Chapter 39, “Refunds of Tax Paid in Error” • Ontario Retail Sales Tax Guide Number 700, “Refunds and Adjustments” • British Columbia Consumer Taxation Branch Bulletin GEN 008, “Refunds of Overpayments of Tax”. • British Columbia Consumer Taxation Branch Bulletin GEN 001, “Refund of Tax Remitted on Sales Written Off as ‘Bad Debts’” 4 OVERVIEW OF RETAIL SALES TAX Retail sales tax provinces include: • British Columbia • Saskatchewan • Manitoba • Ontario • Prince Edward Island • In Canada, there are 5 provinces that administer a retail sales tax: – British Columbia – 7%; – Saskatchewan – 5%; – Manitoba – 7%; – Ontario – 8%; and – Prince Edward Island – 10% (calculated on a GST-included amount). • Retail sales tax is a single-stage use tax that applies on taxable sales to the end-user or consumer. • Each of the retail sales tax (“RST”) provinces administers its own tax. As a result, even though there are many similarities with respect to the application of tax in these provinces, significant differences do exist. • Tax generally only applies to tangible personal property (i.e., goods) and specified services. Registered vendors are required to collect tax on supplies of taxable goods and services. Certain provinces also require or permit non-registrants to collect and remit tax on taxable supplies. • Tax is payable by the final consumer or user of taxable goods or services in each RST province. Where a vendor fails to collect tax, for whatever reason, on taxable supplies, the taxpayer is required to self-assess and remit the tax directly on its tax return. This includes imported goods and services used or consumed in an RST province purchased from unregistered non-residents. 5 OVERVIEW OF RETAIL SALES TAX Registration • British Columbia • Saskatchewan • Manitoba • Prince Edward Island • Ontario • Every vendor in British Columbia selling or leasing taxable goods or services, as well as those organizations providing legal services, telecommunications services, selling parking within the Greater Vancouver transportation service region, or acting as a liquidator or real property contractor must register as a vendor. In addition, non-resident vendors that sell goods into the province, accept purchase orders from customers in the province, deliver goods into the province and solicit sales there through any means are also required to register. • Saskatchewan requires all vendors in the province to register. A non-resident making sales in the province, or having a permanent establishment there, is also required to register. • Everyone carrying on business in Manitoba is required to be registered. In addition, out-of- province vendors that solicit orders and accept purchase orders in the province for taxable goods to be delivered and consumed in the province must register as a vendor. • Vendors in Prince Edward Island are required to obtain a Certificate of Registration prior to making taxable sales. However, non-resident vendors are not required to register where they have no sales office or sales personnel in the province and their business is not involved with the distribution of promotional items. • In Ontario, a Vendor Permit is required for the collection of retail sales tax (“RST”) on taxable goods and taxable services sold on a regular basis, and on premiums for certain types of insurance contracts and benefits plans. 6 OVERVIEW OF RETAIL SALES TAX Collection of RST • Who collects RST? • registration − required where a person: ¾ regularly sells taxable supplies ¾ sells taxable insurance in Ontario ¾ regularly imports items for own use ¾ is a manufacturing contractor or a non- resident contractor • RST is required to be collected by registered vendors as agents for the taxation jurisdiction on taxable supplies provided in each of the five RST provinces. • A permit should also be obtained by: – manufacturing contractors; – non-resident contractors awarded contracts in an RST province; – those who sell goods or services at flea markets, fairs or exhibitions; – those who regularly import taxable goods or taxable services into an RST province for own use; – those who purchase goods with the intention of resale, but later use the goods for own use; and – those who sell taxable insurance in Ontario. • A permit is not required if: – the business does not sell taxable goods or taxable services (for example, a fresh fruit and vegetable stand or a dry cleaning store) – if a vendor decides to sell taxable goods or services at later date, a vendor permit will be required; – taxable goods are sold only occasionally (for example: a dentist that sells an electric toothbrush from time to time; an individual selling personal goods, perhaps through buy-and-sell advertisements or at garage sales; or someone occasionally renting out a personally owned motor home); or – the organization is a religious, charitable, benevolent or non-profit organization that does not regularly sell taxable goods or taxable services. 7 APPLICATION OF TAX Tax on consumption • definitions − consumer/user ¾ own use ¾ use of others − consumption − use • no special rules for financial institutions or the MUSH sector • “Consumer” and “user” are defined in all RST provinces to include persons who utilize or intend to utilize tangible personal property or a taxable service for their own consumption, or for the consumption of any other person at their expense. • Therefore, where a person purchases taxable supplies for their own use, RST is applicable (e.g., computers, desks, or anything acquired by a vendor in the provision of the supply of its goods or services). • In addition, organizations providing goods or services, at their expense, to any other person are liable for tax on the value of the supply. Where the goods are sold at an amount below cost, tax applies to the selling price and RST must be self-assessed by the vendor on the difference between the selling price and the cost of the product. • For example, a catalogue, arguably, is produced by an organization for the use of its customers, but is generally paid for by the vendor. Without this provision, tax would not be applicable on this item, since the person who is actually using the catalogue did not pay for it. • “Consumption” is defined to include the incorporation of tangible personal property into any structure, building or fixture, as well as the provision of taxable goods or services by way of promotional distribution. • “Use” includes storage and the exercise of any right or power over tangible personal property incidental to the ownership of that property. • There are no special rules in place exempting purchases made by financial institutions or organizations in the MUSH sector (municipalities, universities, schools and hospitals) from RST. However, certain exemptions may be available to these organizations. 8 APPLICATION OF TAX Tax on consumption • retail sales − includes most sales other than those acquired for resale − conditional sales contracts − barter transactions − excludes sale of receivables • when tax is payable − generally at the time of sale • Tax applies to retail sales. A “retail sale” is generally defined for RST purposes to mean a sale to a purchaser for the purpose of consumption or use and not for resale. • Retail sales, leases and rentals of taxable tangible personal property and taxable services are subject to RST when purchased for consumption. This generally means that tax becomes payable when legal title passes or services are performed in the province (often indicated by the f.o.b. terms). • A sale includes any transfer of title to goods, as well as the transfer of possession under a conditional sales contract. Therefore, even though title may not pass under a conditional sales contract until final payment is made, goods delivered to a customer under such a contract are considered to have been sold at the time possession of goods is transferred to the customer. As a result, tax becomes payable when possession is transferred.

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