On February 25, 2010, the Department of Finance released a News Release about what will be the harmonized sales tax ("HST”) place of supply rules and shortly thereafter the Canada Revenue Agency released a GST/HST Notice setting out their administrative position. On April 30, 2010, the Department of Finance released Draft Regulations in respect of Place of Supply of Property and Services (the “Draft Regulations”). There is a separate HST place of supply rule for customs brokerage services.

Section 24 of the Draft Regulations sets out the HST place of supply rules for customs brokerage services:

24.(1) Where a supply of a service is made in respect of the importation of goods and the service is the arranging for their release (as defined in subsection 2(1) of the Customs Act) or the fulfilling, in respect of the importation, of any requirement under that Act or the Customs Tariff to account for the goods, to report, to provide information or to remit any amount,

(a) if the goods are accounted for as commercial goods (as defined in subsection 212.1(1) of the Act) under section 32 of the Customs Act, the supply is made in the province in which the goods are situated at the time of their release;

(b) if paragraph (a) does not apply and tax, calculated at the tax rate for a participating province, is imposed under subsection 212.1(2) of the Act, or would be so imposed if subsections 212.1(3) and (4) and section 213 of the Act did not apply, in respect of the importation, the supply is made in that participating province; and

(c) in any other case, the supply is made in a non-participating province.

(2) Subsection (1) does not apply to the supply of any service provided in relation to an objection, appeal, redetermination, re-appraisal, review, refund, abatement, remission or drawback, or in relation to a request for any of the foregoing

This means that:

Rule 1: If commercial goods are imported into Canada, the place of supply of the customs brokerage and related services is in the province in which the goods are released. Therefore, if the goods are released at Toronto Pearson Airport, the Ontario HST (13%) would apply. If the goods are released at the Vancouver Port, then British Columbia HST (12%) will apply. If the goods are released at the Halifax Port, the Nova Scotia HST (15%) will apply after July 1, 2010.

Rule 2(a): If imported goods are not accounted for as commercial goods (which would mean they are casual goods) and section 212.1 of the Excise Tax Act requires that a person resident in the HST Zone (Ontario, British Columbia, Nova Scotia, New Brunswick, Newfoundland/Labrador) pays HST on the goods, HST is payable on the customs brokerage and related services at the same participating province rate as the rate applicable to the goods.

For example, an individual resident in Ontario purchases a “Blue Dog” painting from the New Orleans artist and asks for the painting to be shipped to Ontario from the United States. Since the importer is resident in Ontario, 13% HST would apply on the painting and the customs brokerage services.  

Rule 2(b): If imported goods are not accounted for as commercial goods (that would mean they are casual goods) and section 212.1 of the Excise Tax Act does not require that person who is resident outside the HST Zone to pay HST on the goods, then HST is not payable on the customs brokerage services.  

For example, an individual resident in Alberta who purchases a “Blue Dog” painting from the New Orleans artist and asks for the painting to be shipped to Alberta. Since the importer is resident in Alberta, 5% GST would apply to the painting and the customs brokerage services.  

Rule 3(a): If the imported goods are non-taxable importations in Schedule VII of the Excise Tax Act and, therefore, no HST applies in respect of the goods, HST would still apply to the customs brokerage services based on whether the importer is resident in an HST province.  

Rule 3(b): If the imported good is a specified motor vehicle, mobile home or floating home, despite the fact HST may not be applicable on the goods, HST would still apply to the customs brokerage services based on whether the importer is resident in an HST province.  

Rule 4: If the customs brokerage services relate to an objection, appeal, re-determination, re-appraisal, review, refund, abatement, remission or drawback, or in relation to a request for any of the foregoing (called herein “post-importation customs brokerage services”), Rules #1-3 do not apply. The general place of supply rules for services would be applicable.  

Rules 5(a)-(g) are the general HST place of supply rules for services.  

Rule 5(a): A supply of a service is made in an HST province if, in the normal course of business, the supplier obtains a single address of the recipient in the HST province that is a home or business address in Canada of the recipient. A supply of a service is not made in an HST province if, in the normal course of business, the supplier obtains a single address of the recipient outside the HST Zone that is a home or business address in Canada of the recipient.  

Rule 5(b): If a supply of a service is made in a province and if, in the normal course of business, the supplier obtains more than one business and/or home address of the recipient, the address for the HST purposes is the address most closely connected with the supply of the service:  

  • If the address most closely connected to the supply of the service is in the HST Zone, then HST applies; or  
  • If the address most closely connected to the supply of the service is outside the HST Zone, then HST does not apply.  

Rule 5(c): If a supply of a service is made in a province and if, in the normal course of business, the supplier does not obtain a business or home address of the recipient in Canada, the address for the HST purposes is the address most closely connected with the supply of the service:  

  • If the address most closely connected to the supply of the service is in the HST Zone, then HST applies; or  
  • If the address most closely connected to the supply of the service is outside the HST Zone, then HST does not apply.  

Rule 5(d): A supply of a service is made in an HST province if the Canadian element of the service is performed by the supplier primarily (50% or more) in the HST Zone. The applicable HST rate is the rate of the HST province in which the greatest proportion of the services are performed.  

Rule 5(e): If (i) any of Rules 5(a)-(d) applies (i.e., do not obtain address in Canada of the recipient AND the service performed in Canada is performed primarily in HST provinces), AND (ii) a single HST province cannot be determined as being the HST province in which the greatest proportion of the service is performed because the service is performed equally in two or more HST provinces, then the supply will be regarded as made in the HST province for which the rate of the provincial component of HST is highest. For example: 50% of services in BC and 50% in Ontario, then Ontario’s 13% HST rate apples.  

Rule 5(f): If Rule 5(e) applies, but a single participating province still cannot be determined to be the place of supply because the particular rate of the provincial component of the HST in two or more of the particular participating provinces is the same (e.g., Ontario and Newfoundland), the supply is made in the HST province where the business address of the supplier is located.  

Rule 5(g): If the supplier’s business address is not located in one of the two HST provinces, the default is the province in closest proximity to the supplier (determined in a reasonable manner) that is most closely connected to the supply.  

Rule 5(h): A supply of a service is made outside the HST Zone (a non-participating province) if (a) the Canadian element of the service is performed by the supplier primarily (50% or more) outside the HST Zone.

This article originally appeared on www.thehstblog.com.