28 February 2000 GST/HST Interpretation 25844 - Subcontractor GST Remittances

Dear XXXXX

Thank you for your letter of January 12, 2000 concerning the application of the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) to labour-only subcontractors. XXXXX[.]

Interpretation Requested

Based on the information provided in your letter, you require direction on whether your labour-only subcontractors should be remitting GST since the GST you are charged by these sub-contractors will be claimed as an input tax credit in calculation of your remittances. You also asked whether it was necessary for these sub-contractors to be registered for GST purposes.

Interpretation Given

You wish to know under what circumstances a sub-contractor would be required to collect GST on his/her remuneration.

The first factor to be considered is whether a person is providing his/her services and being remunerated as an employee or as a self-employed contractor.

Every person who makes a taxable supply of goods or services in Canada in the course of commercial activity engaged in by the person in Canada is required to be registered for GST purposes, unless:

(a) the person is a small supplier;

(b) the only commercial activity of the person is the making of supplies of real property by way of sale otherwise than in the course of a business; or

(c) the person is a non-resident person who does not carry on any business in Canada.

A "person" for GST purposes, means "an individual, a partnership, a corporation, the estate of a deceased individual, a trust, or a body that is a society, union, club, association, commission or other organization of any kind".

A "supply" for GST purposes means the provision of property or a service in any manner including sale, transfer, barter, exchange, licence, rental, lease, gift or disposition. "Consideration" is defined to include any amount that is payable for a supply by operation of law. It means any property, whether real or personal, movable or immovable, tangible or intangible (i.e. royalties), corporeal or incorporeal, and includes a right or interest of any kind, a share and a chose in action, but does not include money.

A "taxable supply" for GST purposes, means "a supply that is made in the course of commercial activity".

"Commercial activity" as defined in subsection 123(1), in part, means a business, or an adventure or concern in the nature of trade, except to the extent that the business, adventure or concern involves the making of an exempt supply. A "business", however, does not include an office or employment.

A person qualifies as a "small supplier" throughout a particular calendar quarter and the following month if the consideration for taxable supplies (other than sales of capital property) made by the person, or of associated persons, in the preceding four calendar quarters did not exceed $30,000 worldwide or, where the person is a public service body, $50,000 (small suppliers' threshold). An exception to this rule is where a person, and any associated persons, at any time in one particular calendar quarter exceeds the small suppliers' threshold in their taxable supplies. Where the threshold is exceeded in this situation, the person ceases to qualify as a small supplier immediately before that time and is required to become registered and collect the GST on their taxable supplies.

Pursuant to subsection 165(1), every recipient of a taxable supply made in Canada shall pay tax in respect of the supply equal to 7% of the value of the consideration for the supply.

A "recipient" is a person who is liable to pay consideration for a supply. Therefore, the liability to pay tax arises as soon as the recipient agrees to pay for a taxable supply.

However, the supplier also has obligations with respect to the collection of the GST. Every person who is a registrant has certain responsibilities or obligations for GST purposes. Specifically, every registrant who makes a taxable supply in Canada shall collect the tax payable by the recipient. The registrant is also required to file a return and remit the net tax for the reporting period for which the return is required to be filed. Therefore, a supplier of a taxable supply is required to account for the net tax on the GST return for the reporting period in which tax became payable, even if they did not collect the amount of tax.

Pursuant to subsection 169(1), where a GST registrant acquires a supply of property or service for consumption, use or supply in the course of a commercial activity, the registrant is entitled to claim a credit equal to the tax paid or payable on the acquisition to the extent the property or service is used in their commercial activity. That is, the registrant is eligible to claim an ITC (input tax credit) for the GST paid or payable. As well, according to subsection 171(1) for the purposes of determining an ITC upon becoming a registrant, immediately before that time the person is deemed "to have received, at that time, a supply by way of sale of each property of the person that was held immediately before that time for consumption, use or supply in the course of commercial activities of the person; and to have paid, at that time, tax in respect of the supply equal to the basic tax content of the property at that time".

A sub-contractor will not be required to register and collect GST if he/she is hired as an employee. If self-employed, then it must be determined whether he/she is carrying on business in Canada, whether he/she is a small supplier, and so on, as discussed above. As can be seen, there are a number of factors that must be considered when determining whether a sub-contractor working in Canada must register and collect GST.

The foregoing comments represent our general views with respect to the subject matter of your letter. Proposed amendments to the Excise Tax Act, if enacted, could have an effect on the interpretation provided herein. These comments are not rulings and, in accordance with the guidelines set out in section 1.4 of Chapter 1 of the GST/HST Memoranda Series, do not bind the Department with respect to a particular situation.

For your convenience, find enclosed a copy of section 1.4 of Chapter 1 of the GST/HST Memoranda Series.

Should you have any further questions or require clarification on the above matter, please do not hesitate to contact me at (613) 952-0419.

Yours truly,

Catherine Séguin
General Operations Unit
General Operations & Border Issues Division
Excise and GST/HST Rulings Directorate