GST/HST Non-Resident Override Rule

January 01, 2025
GST/HST Non-Resident Override Rule

 

Introduction

GST/HST is the sales tax charged on the provision of goods and services in Canada. For businesses engaged in taxable activities in Canada, registration and compliance with GST/HST regulations are essential. However, non-resident businesses may encounter different rules when it comes to GST/HST registration and remittance, especially when they meet certain criteria for the non-resident override rule outlined in the Excise Tax Act.

This article explores the key concepts surrounding non-resident GST/HST obligations, including the criteria for registration, the non-resident override rule, and why non-residents might still choose to register voluntarily.

 

General GST/HST Registration Requirement for Non-Residents

Non-residents of Canada are generally required to register for GST/HST if they carry on business in Canada and meet certain revenue thresholds. Specifically, non-residents must register if their worldwide taxable supplies exceed $30,000 CAD annually.

When a non-resident is required to register for GST/HST, they must collect and remit GST/HST on taxable supplies made in Canada. Failure to do so can result in penalties and interest.

Carrying on Business in Canada

The term “carrying on business in Canada” is not explicitly defined in the Excise Tax Act, but it is determined by examining a series of factors regarding the non-resident’s business activities. These factors include:

  • The location of business operations (e.g., services performed, contracts made, or where business transactions occur).
  • Where the business maintains offices, employees, inventory, and banking accounts.
  • The place where deliveries or purchases are made.

The non-resident’s presence in Canada—whether physical or operational—is critical in determining whether they are carrying on business in Canada.

 

Place of Supply Rules

Whether a supply of goods or services is subject to GST/HST depends on the place of supply rules in the Excise Tax Act. These rules determine where a taxable supply is considered to be made, and it must be made in Canada for GST/HST to apply.

For example:

  • Tangible goods are considered supplied in Canada if they are delivered or made available in Canada.
  • Services are considered supplied in Canada if the whole or part of the service is performed in Canada.
  • Intangible personal property is considered supplied in Canada if it relates to real property or goods situated in Canada, or if it is used in Canada.
  •  

The Non-Resident Override Rule

Subsection 143(1) of the Excise Tax Act introduces the non-resident override rule, which provides an exception for non-residents who are not required to collect GST/HST on taxable supplies made in Canada under certain circumstances.

Key Provisions of the Non-Resident Override Rule

  • Deemed to Be Outside of Canada:
    • A non-resident's supply of goods or services made in Canada may be deemed to have been made outside of Canada, and therefore, GST/HST will not apply.
  • Conditions for the Override:
    • The supply must not be made in the course of a business carried on in Canada.
    • The non-resident must not be registered for GST/HST in Canada at the time of the supply.
    • The supply cannot involve admission to a place of amusement, seminar, event, or activity where the non-resident did not acquire the admission from another supplier.

The non-resident override rule can relieve non-residents from the obligation to collect and remit GST/HST on certain supplies, but there are specific situations where registration and compliance remain necessary.

 

Pro Tax Tips: Why Non-Residents Might Still Register for GST/HST

Even if a non-resident qualifies for the non-resident override rule, there may be compelling reasons to voluntarily register for GST/HST:

  1. Claiming Input Tax Credits (ITCs):
    • By registering for GST/HST, a non-resident can claim Input Tax Credits (ITCs) on GST/HST paid to Canadian suppliers for business expenses. Without registration, non-residents miss out on this potential financial benefit.
    • For example, if a non-resident Manufacturing Corporation sells a small batch of products to a Canadian company and pays GST/HST on shipping fees, registering for GST/HST allows the corporation to claim ITCs on the shipping GST/HST, reducing its net tax obligations.
  2. Avoiding the Override:
    • When a non-resident registers for GST/HST, the non-resident override rule no longer applies to them, and they become obligated to charge and remit GST/HST. However, by voluntarily registering, they may offset GST/HST paid on expenses with ITCs.
  3. Ensuring Compliance:
    • Even if not required to register, non-residents may find it easier to comply with Canadian tax regulations by voluntarily registering. This can be especially important for businesses with ongoing or large transactions with Canadian clients.

 

Conclusion

The non-resident override rule offers an important exception to the general rule requiring non-residents to register for GST/HST. However, despite qualifying for the override, non-residents may still benefit from voluntary registration, especially if they want to claim Input Tax Credits for GST/HST paid on business expenses.

For non-residents conducting business with Canadian clients or suppliers, consulting with a tax professional is essential to determine the best approach for complying with GST/HST obligations. Professional guidance can help businesses navigate the complexities of Canadian tax laws and ensure they make informed decisions about registration and remittance requirements.

 

This article is written for educational purposes.

 

Should you have any inquiries, please do not hesitate to contact us at (905) 836-8755, via email at [email protected], or by visiting our website at www.taxpartners.ca.

 

Tax Partners has been operational since 1981 and is recognized as one of the leading tax and accounting firms in North America. Contact us today for a FREE initial consultation appointment.

Back to Articles