GST Taxation on Imports and Input Tax Credits
Anyone required to pay a duty on the importation of goods into Canada under the Customs Act or who would be liable to pay duty if the goods were subject to duty is liable to pay Goods and Services Tax (“GST”) on those goods. A person includes an individual or a corporation.
The GST is Canada’s federal value added tax that is imposed at a rate of 5% of the value of goods sold. In Ontario and the four Maritime provinces, the provincial sales tax was combined with the GST to create the Harmonized Sales Tax or HST, the HST applies at a rate of 15% in the four Maritime provinces and 13% in Ontario. The GST is structured as a tax on the end consumer. When a person who provides goods or services to end consumers pays GST in the course of their commercial activities, they will normally be able to deduct input tax credits (“ITCs”), which are the GST paid on purchases or inputs, to offset the GST that must be collected and remitted to their customers. For example, Computer Manufacture Inc. paid GST to acquire the parts needed to build a computer for Susan (or Susan Corporation Inc.), the end consumer. When Computer Manufacture Inc. charges GST on its sale of the computer to Susan, it will offset the amount of that GST it remits to the Canada Revenue Agency (“CRA”) against the amount of GST paid for it. acquire computer parts. To apply this compensation, Computer Manufacture Inc. will claim ITCs on its GST return for the amount of GST paid on the purchase of computer parts (as well as GST paid on other inputs such as electricity or the rent).
Likewise, an ITC may be claimed on the GST paid on imported goods. Only one person can claim this ITC for each property. However, determining who is entitled to claim the ITC for the GST paid on the importation of goods can be a complicated matter depending on the circumstances and may require the advice of a GST expert. The general rule, under subsection 169 (1) of the Excise Tax Act, is that a GST registrant is entitled to claim an ITC for the GST paid on the importation of the goods if he / she imported the goods for his own consumption, use or supply in the course of his commercial activities. This registrant is known as “de facto“importer. The relevant factors in determining who is the de facto importer include the place of supply of the goods.
Article 178.8 of the Excise Tax Act is intended to deal with commercial arrangements under which a person is the recipient of a supply of goods made outside Canada and imported into Canada for its consumption, use or supply where the physical importation is made and counted by another party. The person in these circumstances is known as a “constructive importer”. The other part is called the supplier.
Subsection 178.8 (2) is intended to ensure that the fictitious importer can claim the ITC on the GST paid on importation even though he or she has not physically carried out the importation of the goods and / or accounted for the importation. goods. The fictitious importer will need to obtain copies of import documents from the supplier in order to claim ITCs. The supplier is not entitled to claim the ITC on the GST paid on the importation, subject to the choice exception discussed later in this article, because the supplier – despite handling the physical importation of the products – not import the products for own consumption, use or supply.
GST532 agreement and revocation of an agreement between the supplier and the fictitious importer
The fictitious importer and the supplier may jointly elect to allow the supplier to claim the ITC on the GST paid on the importation. If the fictitious importer and supplier so choose, then the taxable supply of the goods is deemed to have taken place in Canada. The supplier must collect GST on its supply of goods to the notional importer, but may claim an ITC on the GST paid on the importation. The fictitious importer can no longer claim an ITC on the GST paid on the importation, but can instead claim an ITC on the GST paid to the supplier.
The election is made or revoked using Form GST532. The choice can be made for single or multiple transactions, for supplies within a specified period or on an ongoing basis. The choice can be made at any time. The election does not need to be filed with the CRA, but the supplier and the fictitious importer must keep a completed copy of Form GST532 for at least six years after the end of the year in which the agreement applies. Both parties are required to sign the completed form.
If the election is made after the supply of the goods, the supplier is retroactively entitled to claim the ITC and is required to collect GST as described above. If the supplier has already claimed the ITC and collected the GST as it would have been had the election been made at the time of supply, there will be no penalty or interest. The fictitious importer can no longer claim the ITC for the tax paid on the importation of goods. If the alleged importer has already claimed the ITC, the limitation period for the alleged importer’s net tax assessment or reassessment is extended by four years after the election.
Pro tax advice: import documents are relevant proof
Those who import and pay the related GST should make sure to keep all necessary copies of import documents. In the event of a CRA tax audit, these documents will be important evidence in determining which party was entitled to claim the ITC for the GST paid when importing goods. GST import rules are complex products and generally require the advice of a Canadian GST / HST expert. Although not falling within the scope of this article, there are other relevant rules such as article 180 of the Income Tax Act which is a transfer rule allowing a GST registrant in certain circumstances to claim the ITC on the GST paid on the importation of goods when the importer who pays the GST on the importation is a non-resident and unregistered . To better understand the GST rules applicable to importation, or for assistance with a tax audit, contact our experienced Canadian tax lawyers.
What is the GST?
The GST, or the goods and services tax, is the federal part of the sales tax. The current GST rate is 5%. In Ontario and the four Maritime provinces, the provincial sales tax was combined with the GST to create the Harmonized Sales Tax or HST, the HST applies at a rate of 15% in the four Maritime provinces and 13% in Ontario.
What is a constructive importer?
A deemed importer, in accordance with section 178.8 of the Excise Tax Act, is a person who is the recipient of a supply of goods made outside Canada and imported into Canada for its consumption, use or its supply when the physical importation of products is effected by and accounted for by another party.
What is Form GST532?
Form GST532 is an election form completed and signed by a supplier and a deemed importer to allow the supplier to claim the input tax credit for the GST paid on the importation of goods into Canada. If the supplier and the deemed importer complete this election, the supplier will be required to pay the GST paid on the importation of goods into Canada, and the deemed importer will instead claim an ITC on the GST paid to the supplier.
The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.