March 2019 Newsletter

Whether or not you’re in a Harmonized Sales Tax province, if you carry on business you need to know the rules for when to charge HST. You might be surprised!

The GST/HST rates are:

  • 13% HST for a supply “made in” Ontario (generally customers located in Ontario)
  • 15% HST for a supply “made in” New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland & Labrador (generally customers located in the Atlantic provinces)
  • 5% GST for a supply “made in” any other province or the territories. (Quebec has a GST-like Quebec Sales Tax, which is not part of the HST, and is discussed in the next article. Alberta and the territories have only the 5% GST. Each of B.C., Saskatchewan and Manitoba has a provincial retail sales tax that does not apply to vendors outside the province.)

Quebec is not part of the Harmonized Sales Tax (HST) system discussed in the quiz above. Federally, only the 5% GST applies for sales to customers in Quebec, and the HST does not apply.

However, Quebec has the 9.975% Quebec Sales Tax (QST), which uses the same rules as the GST for businesses in Quebec. In fact, Revenu Québec administers the GST and the QST together in Quebec, so that businesses have to deal with only one tax administration for both taxes.

Until now, the QST has not been an issue for businesses that do not have offices or locations in Quebec. A business in, say, Ontario that sells goods or provides services to a Quebec customer would charge the 5% GST and nothing more.

If you have invested in a tax shelter, or claimed some deduction or credit that you think the CRA might disallow, when can you stop worrying?

The normal rule is that the Canada Revenue Agency (CRA) can reassess you up to three years from your original assessment. The three-year clock starts running from the date shown on the Notice of Assessment that you receive shortly after filing your return. In most cases, if you haven’t been reassessed by the time the clock runs out, you are safe for that year. But not always!

Every taxpayer can contribute, cumulatively, up to $5,000 to a Tax-Free Savings Account (TFSA) for each year 2009-2012, $5,500 per year for 2013-2014 and 2016-2018, $10,000 for 2015 and $6,000 for 2019. Income earned on the funds in a TFSA is tax-free.

If you were at least 18 by 2009 when the TFSA began (i.e., you were born in 1991 or earlier), and you have been resident in Canada since 2009, then you now have a total of $63,500 in contribution room. It’s well worth it to have that money earning income in a TFSA where it is completely tax-free, even if you take the income out and spend it.

Each taxpayer has the same limit, so you and your spouse can each contribute the maximum.

TFSA contributions are not deductible for tax purposes, but income earned in the TFSA is tax-free and you can withdraw the funds at any time (subject to any restrictions on your investments — for example, if you have bought a two-year GIC, you might have to wait out the two years before you can access the funds, or pay a penalty to the bank for early withdrawal).

If you have investments that are earning interest or dividends that are subject to tax, make sure to max out your Tax-Free Savings Account.

Here are the answers to the quiz above.

  1. You charge 15%, the rate for Nova Scotia. Goods sold and shipped anywhere in Canada bear GST or HST based on the rate of tax in the destination province.
  2. You still charge 15%, the rate for Nova Scotia. As long as you’re arranging the shipping, even as the customer’s agent, the same rule applies as in #1: the GST or HST applies at the rate in the destination province to which you’ve shipped the goods.
  3. You charge only 5% GST, the rate for Alberta. You’ve completed delivery at your Calgary warehouse, and the customer has made her own arrangements to pick up the goods.
  4. You charge only 5% GST. Services are normally taxed based on the customer’s address (subject to some exceptions), and there’s no HST in Manitoba.
  5. Again you charge only 5% GST. It doesn’t matter where you perform the work. Services are normally taxed based on the customer’s address (subject to some exceptions).
  6. You charge 13% HST, the rate for Ontario. A service “rendered in connection with litigation” in a province’s courts is taxed at the rate for that province. The litigation is in an Ontario court. This rule is often thought to apply only to lawyers’ services, but is actually much broader!
  7. Again you charge 13% HST, the rate for Ontario, because this is a service in connection with litigation in an Ontario court. It doesn’t matter where you perform the service.
  8. You charge only 5% GST, the rate for Alberta. Even though services are normally taxed based on the customer’s address, there is an exception for “personal services” performed in the presence of the individual to whom the services are rendered. Such services are taxed based on where they are performed. Since you perform the service in Alberta, the Alberta rate applies.
  9. You charge 15% HST, the rate for New Brunswick. The exception for “personal services” in #8 above doesn’t apply to an “advisory, professional or consulting service”. Instead, such a service is subject to the normal rule for services, based on the customer’s address. (A physician’s service is a “professional” service.)
  10. You charge only 5% GST, the rate for Quebec. There is a special rule for goods that are sent for repair, alteration, cleaning or a similar physical service. The tax applies based on the address to which the goods are returned after being repaired, altered, cleaned, etc. (If you had an office in Quebec, you would have to charge Quebec Sales Tax as well.)

Penalty for not providing T5018 slips to subcontractors

The Contract Payment Reporting System targets the underground economy by requiring construction contractors (anyone who derives their income primarily from “construction activities”) to report to the CRA all payments to subcontractors (of at least $500 services per year per subcontractor), along with the subcontractor’s Business Number or Social Insurance Number. This is done either on Form T5018 slips (given to each subcontractor), or line-by-line on a T5018 summary. These rules are found in section 238 of the Income Tax Regulations