In this instance, the owners are asking why they must pay 13% HST on the purchase of their boxes from Ontario. They thought that since they were located in Alberta, that they should only have to pay 5% GST. They also expressed concern about whether they can claim an Input Tax Credit (ITC) if they pay tax at a different rate than5% and if they need to report this on a separate return?
Our first task was to explain to Game Company that because they are registered for the GST they are also registered for HST. There are five different rates of GST/HST across Canada and the tax collected or paid at any of the rates is reported together on the one GST/HST return. We have suggested to Game Company that they may want several internal accounts to track the tax they pay and collect at different rates, however, when it comes to filing their GST/HST return they can report everything together.
Next, in order to better advise Game Company on the second part of their question with regards to the appropriate tax rate for the purchase of boxes from the company in Ontario, we asked them:
- What were the terms of the contract?
- Were the boxes delivered to the warehouse in Red Deer?
- Who delivered the boxes? The company in Ontario or a third party carrier?
- If the delivery of the boxes was by a third party carrier, who arranged for the carrier?
As our last blog post explained, the Place of Supply Rules for Tangible Property, boxes qualify as things that you can touch and feel– so they are considered tangible property. Although Game Company is registered for GST/HST and is able to claim Input Tax Credits (ITCs), it is still important that they pay the correct amount of tax for the boxes. If they don’t pay the correct amount they may encounter unforeseen liabilities in the future. If they pay too much tax, they may be disallowed an ITC. Both situations could cause problems in the future if the Canada Revenue Agency (CRA) comes to audit.
When we reviewed the contract Game Company had with their box supplier, we saw that the title to the boxes did not transfer to our client until they were delivered to their warehouse in Red Deer. The Ontario box company was arranging for the boxes to be delivered by a third party carrier and the delivery charges were being added to the invoice.
In this situation, we were able to see that Game Company should have been paying 5% on the purchase of its boxes because they were delivered into Alberta by the vendor.
As the boxes were a significant expense to Game Company, they were happy to have an extra 8% back in their own pockets. So in this particular situation, it turned out that Game Company was only required to pay 5% GST on the purchase of the boxes. The key factor in this scenario was that the boxes were being delivered by the vendor to Alberta.
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About Heather Weber and Meyers Norris PennyLLP:
Heather Weber, CGA, is the leader of Meyers Norris Penny’s Indirect Tax Group and operates out of B.C. To contact her or find out more her, click here.
MNP is one of the largest chartered accountancy and business advisory firms in Canada, providing client-focused accounting, taxation and consulting solutions. MNP has proudly served mid-market public and private companies for more than 60 years. Through the development of strong relationships, MNP provides organizations with personalized strategies and a local perspective to help clients succeed. For more information, visit http://www.mnp.ca/