GST/HST Part 2 – What rate do you Charge Your Customers?

I’m back with some GST/HST tips for those of you already registered in the program, or for those who determined from Part 1 that they needed to get registered. In Part 2, we will discuss:

• What rate do you charge?
• What about selling outside of Canada?

If you like video content, you can watch the live I did recently on this topic (link to?FB?or?LinkedIn)!

In Canada, we have different GST-HST rates across the provinces:

So how do you know which rate to charge your customers? Do you charge based on where you are?? Where your customer is??Something else?

In order to answer this question, you have to get clear on WHAT type of supply you are making and WHERE the supply is being made. For the first half of the question, please remember our conversation from Part 1 where we considered?exempt vs taxable supply. Today we’re going to add to the discussion by introducing the 0-rated supply.?

0-rated supply means you are charging GST-HST at 0%

0-rated FEELS similar to exempt, because your customer isn’t actually paying any GST/HST on their purchase, but the tricky piece is you ARE charging GST/HST under these rules, just at 0%.

If you are selling something that falls under the 0% rated rules, you still apply for a GST/HST number, and will report your 0% rated sales on your GST/HST return (there’s a separate line for it) AND, most importantly, you still get to claim any GST/HST you’ve paid on your expenses as an ITC when you file your return (meaning you get those funds back!)

If you are selling something that falls under exempt supplies, you don’t do any of this (don’t register, don’t report sales on a GST return, and don’t get to claim any GST/HST paid as a refund).

Link?HERE?to CRA’s guidance on solving the question of whether what you are selling falls under the rules

Okay, so if we have determined we are selling something that is taxable, then we can move onto the second half of the question:?

WHERE the sale is deemed to take place?

To answer this, we need to dip into something called the “place of supply rules”. Here I direct you to another CRA resource, which is actually quite helpful:?place-of-supply rules.? You will find through that link, a decision tree based on what you’re selling - Goods, Real property, Services or Intangibles – you go through the questions to determine where the sale is taking place.

For goods, it’s usually where the goods are delivered.

For services, it's usually where the customer is located (assuming you get their address in the normal course of business).

Intangibles are a little trickier – there’s questions to consider around whether you are getting your customer’s address, and what price-point you’re selling at, but generally a supply of intangible personal property is deemed to be made in Canada if the property may be used in whole or in part in Canada.

In all cases, please?do your due diligence on this!?The rules can get technical, and while there are commonalities in the rules, there are also exceptions.? But all the components of the rule are getting at where the sale is made. And you charge based on where the sale is made. CRA has guidance to help you navigate how to determine where the sale is being made when there are factors involved that make it unclear (that link again HERE).? If you have a physical store where your customer walks in and pays and walks away with the goods, it's pretty easy to determine this. You charge based on the rate that is in the province you’re in.? But in our modern online world, sometimes it gets a little trickier.

Ok... so to recap our biggest question:?

Question: What rate do you charge?

Answer: You need to check the place of supply rules and how they apply to what you sell

And right behind that question:?

Question: What about selling outside of Canada?

Answer: The same rules are going to guide us here:?where?is the sale happening?

I have another resource to send you to:?Supply made outside Canada.? Again, to navigate these rules you have to first answer WHAT you’re actually selling - Goods, Real property, Services or Intangibles – you go through the questions to determine WHERE the sale is taking place. And again, general rule for exports is that they are 0-rated – ie charge your customer 0% - but again, be careful and confirm that’s where your sales fall under the rules as there are exceptions. Particularly when you’re selling intangibles!

If you’re still struggling with how to apply these rules, get help!

• Option 1 – hire an accountant to help you navigate. You can always book a call with me?HERE
• Option 2 – call CRA and speak with an agent specialized under the GST/HST program. Hot tips – they will provide you with their agent ID when they answer – write this down and keep it saved in your file along with the guidance they tell you. ASK THEM to provide you the legislation / ruling / tax bulletin they are referring to, and then go and read it to see if you agree that it’s actually describing your situation
• Option 3 – if you’re really in a grey area and nervous about what to do, you can request a technical interpretation or ruling. More details on that?HERE

Final thoughts

The invoices/receipts you provide your customer must display both your GST/HST number and either the total amount of GST/HST charged or the rate of GST/HST you charged them.

Check your invoicing system to ensure these are being displayed, and if not, update to include these details:

If you’d like to explore these topics in more detail, you can join the waitlist for the next round of??From Overwhelmed to Empowered - Accounting and Tax Toolkit for Small Business?where we guide you through the knowledge and systems you need to manage your accounting and to make empowered decisions about your business. Or you can?sign up for my "5 steps to start your Canadian business strong" and get weekly emails with accounting tips and encouragements for the entrepreneurial journey.

I would appreciate hearing any thoughts you have!

• Did this mini training help you?
• Do you have any follow-up questions?
• Was there anything we covered that surprised you?