Imports and Exports, Canada: What You Really Need to Know About GST/HST: The ins and outs of a multistage value-added tax payable by the ultimate consumer.

• Author: Brousseau, Wendy
• Position: Goods and services tax, harmonized sales tax

When doing business with another country, the sales tax implications are an important consideration. It is possible for nonresidents of Canada (1) to acquire goods and services in Canada for export without having to pay the goods and services tax/harmonized sales tax (GST/HST). It is also possible for nonresidents to provide property, including intangibles, without triggering GST/HST obligations, provided that certain conditions are met. The following provides a high-level summary of some of the GST/HST considerations related to imports into Canada and exports from Canada.

GST/HST Overview

The Canadian federal government imposes a five percent multistage value-added tax called the goods and services tax (GST) that applies to taxable supplies (e.g., supplies of most types of property, including intangibles, real property, and services) made in Canada. The five percent GST is also levied on taxable goods imported into Canada, in addition to any applicable customs duties. The GST and the harmonized sales tax, or HST, imposed on taxable supplies made in Canada is referred to as Division II GST/HST, and the GST imposed on goods imported into Canada is referred to as Division III tax. (2)

The GST applies at each stage of the production and distribution chain. Generally, businesses making taxable supplies of property and services are required to register for, collect and remit the applicable GST on their supplies made in Canada. While GST applies to every transaction throughout the distribution chain, it is imposed on the ultimate consumer; accordingly, businesses involved in commercial activities are entitled to recover the GST they pay on their inputs, including goods imported into Canada, through an input tax credit (ITC) mechanism.

Five provinces currently have harmonized their provincial sales taxes with the GST: Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island. In those provinces, the HST, which comprises the federal five percent GST component plus a provincial component varying from eight to ten percent, applies on the same basis as the GST. (3)

The GST and HST are imposed under Part IX of the Excise Tax Act (Canada), which will be referred to here as the "GST legislation."

Exports

The GST/HST is designed as a tax on consumption in Canada; because exports are consumed outside Canada, they are generally not subject to GST/HST. To ensure that exports are not subject to GST/HST, the GST legislation zero-rates (i.e., taxes at the rate of zero percent) certain exports. Zero-rated exports are set out in the Export Schedule of the GST legislation. Certain supplies listed in the Export Schedule must be supplied to nonresidents to qualify for zero-rating...