The long arm of the Canadian Goods and Services Tax.

• Author: Zink, Bill

Although Canada is the closest and largest commercial trader with the U.S., constant vigilance of cross-border business is critical to avoid surprises. Consider the recent Canadian case of Adv Ltd. v. The Queen.

A U.S. company carried on a mail order business in New York. Canadian business was solicited through direct mail and advertisements in Canadian magazines. Customers placed their orders via mail to an Ontario address. An independent company picked up the orders for delivery to the New York facility.

The issue was the applicability of the Canadian Goods and Services Tax (GST). It should be noted that this company's Canadian activities were insufficient to give rise to a Canadian permanent establishment for Canadian income tax purposes by virtue of the U.S.-Canada income tax treaty. The GST, however, is purely Canadian-domestic and not governed by the treaty. Furthermore, the creation of a Canadian nexus for Canadian GST purposes involves a much lower threshold.

The Canadian GST is imposed on every recipient of a taxable supply made in Canada, based on the value of the consideration of the supply. The vendor of the goods is required to collect the GST and remit it to the government. A GST taxable supply is made in Canada if the goods are delivered or made available in Canada to the recipient of the supply. If delivered outside Canada, the supply is outside the GST tax net. Thus, the US. taxpayer...