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June 28th, 2010
June 28th, 2010

Confused about the BC HST

So was I, here is some information that might help...

As a software provider located in BC, and the changeover date for the new HST fast approaching I have been trying to get some straight answers about how it applies to my business. This turned out to be harder then I would have thought and the answers I eventually got were most surprising! The following should help anyone in BC or Ontario in a similar non-tangible goods service industry.

First and foremost I had a nightmare of a time finding answers on the maze of Government web sites for anything but the basics. The main questions I needed to know were:
1) Does the tax apply to US customers (answer: no)
2) How does the tax apply to customers in other provinces in Canada (answer: well, that depends)
3) If I need to sell tangible goods as well, are there any further steps to complete something like the old ´Social Services Tax Exemption Certificate´ (answer: no, but many wholesalers still don´t understand that)

This leaves a bit more explanation necessary for #2. First of all the document you need to find to answer this is here:
http://www.cra-arc.gc.ca/E/pub/gm/b-103/b-103-e.pdf
It carries the rather ambiguous title "Place of supply rules for determining whether a supply is made in a province" (translated into "human" that means: do you need to charge tax to someone and if so which one)

The one aspect of the HST I had completely failed to understand is that it´s not always the same percentage - it depends on where the customer is, and in terms of software that goes a step further to where the software will actually be used. The rules are all in that document and the examples they give are even easier to understand - but here is my reader´s digest of it all:

As a BC software company:
If I sell to someone in BC and the software will be used in BC or all of Canada then they pay the BC HST (12%) - simple enough, and exactly what I would expect.

If I sell to someone in Ontario and the software will be used in Ontario then I charge them the ON HST (13%) - ok this was a surprise!

If I sell to someone in Quebec and the software will be used in Quebec or across Canada then I only charge them the GST (5%) - confused yet... wait it gets better!

If I sell to someone in Quebec and the software will be used in Nova Scotia then I charge them the Maritimes HST (15%) - still with me?

If I sell to someone in Ontario and the software will be used across Canada then I charge them the ON HST (13%)

So now that this is all perfectly clear... (ya right) Now I understand why it was hard to get a straight answer. I ended up needing to speak with a GST/HST Rulings officer at the Canadian Revenue Agency to get this all explained. The ´thought process´ here is that the tax charged is based predominantly on where the software will be used. Tack on to that the concept that if the goods are going to be used in many provinces then for simplicity (and I use the word lightly) they just assume it´s where the goods were purchased (billing address).

So what does this mean for business in BC? You must be sure to keep tabs on all the taxes in place in every province in Canada to whom you provide services. If your product/service (software for me) is going to be used in a province that has HST you will need to charge at their rate. For any other provinces you will go back to charging the GST only rate. As a side note, when I asked the first person I spoke with at the CRA "How does Ontario ever collect the tax I, as a BC Business, collect at their HST rate if I only report it in BC?" their honest response was "Actually, I´ve always wondered that myself" - and we wonder why it´s so hard to get straight answers about all this...

All kidding aside - I truly hope this helps other businesses sort out the coming HST nightmares.

PS: I must include an excerpt from the document mentioned above because it almost sounds like Peter Piper Picked....

"unlike the previously explained place of supply rules for intangible personal property that can only be used primarily in participating provinces, these proposed rules can result in the supply of intangible personal property being deemed made in a province that is not a participating province."

Oh My!

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