Section 240 - Registration

Example 1 in Policy Statement P-051R2 indicates that a non-resident lessor (with a leasing business outside Canada) is considered to be carrying on business in Canada by virtue of a sale-leaseback transaction under which it purchases a vehicle from a resident registrant, with delivery under the sale agreement and under the lease-back to the resident (who will use the conveyance partly in Canada) occurring in Canada, notwithstanding no other significant connecting factors to Canada.

When asked about a variation on this example where the equipment is purchased by the non-resident from a third party (rather than the Canadian company) and is leased by the non-resident to the Canadian company, which exports the conveyance immediately after taking possession under the lease in Canada, CRA stated:

The modified facts in the scenario are not sufficiently different from the facts in scenario 1 to allow for a different conclusion regarding carrying on business. It appears based on the facts provided that Company B would be carrying on business in Canada.

CRA indicated that, in general, GST/HST “retroactive registration is only available if a person was required to be registered for GST/HST purposes pursuant to subsection 240(1).”

Thus, where a new co-venturer purchased an interest in an existing real estate joint venture for which an ETA s. 273 election was already in place (so that all the rental supplies of that real property were to be reported by the JV “operator” and not by it, it could not become retroactively registered to the date of acquisition so as to claim an ITC for the GST/HST payable by it on that acquisition, and to relieve the supplier from collecting tax under ss. 221(2)(b) and 228(4).

A non-resident insurer which otherwise was only making exempt (insurance policy) supplies in Canada was found to have been required to register for GST/HST purposes as a result of entering into an agreement with another party under which each agreed to provide administrative services to the other at cost, to be billed annually. ETA 136.1(2) typically deems periodically billed services to be supplied at the beginning of each billing period, so that presumably the effective date of required registration was the effective date of this administrative services agreement.

A non-resident (VCo) sells goods to PCo on consignment with the goods delivered to PCo at VCo’s U.S. warehouse (under Incoterm® “Free Carrier”), with Pco importing as the importer of record. Once PCo finds a customer, there is a “flash sale” of the goods by VCo to PCo, and by PCo to the customer.

CRA stated that there was insufficient information to determine whether VCo would thereby be considered to be carrying on business in Canada or (if a registrant) the place of supply was in Canada. However, CRA stated:

[]I]f it is determined, based on all the relevant facts, including the terms of their agreement, that PCo acquires ownership of the goods that remain unsold 6 months after taking delivery of them outside Canada by virtue of their obligation to either purchase them at a 60% discount or destroy them, then the supply of the goods by VCo to PCo would likely be considered to be made outside Canada pursuant to paragraph 142(2)(a) of the ETA. Where this is determined to be the case, and VCo has no other presence in Canada …, VCo would not be considered to be carrying on business in Canada for GST/HST purposes and would therefore not be required to register for GST/HST purposes.

Where non-resident actors and directors film at Canadian locations in Canada, and are paid large sums (exceeding $30,000) respecting services performed in Canada by them on an independent contractor basis, they are required to register irrespective of the residence of the recipient.

Current arrangements

USco, which is not a registrant, supplies information services to businesses and individuals. A small portion of its customer base is individuals located in Canada ("Canadian Customers") subscribing for its information services via a website hosted on a U.S. web server for payment by credit card. The information services are delivered electronically to them from that server and do not involve direct human intervention. USco has no other business activities in Canada, although some of its employees visit Canada on an irregular basis.

USco acquires specific data from its Canadian resident affiliate ("Canco") for the purpose of packaging, marketing and selling the information services to Canadian Customers, as well as acquiring one-time services for a separate fee. Canco is not otherwise directly involved in the provision of the information services to Canadian Customers.

Canadian Customers are typically introduced to the availability of the information services by third party vendors ("TPVs") on commission who carry on business in Canada.

New Services

Canco and USco have entered into a new agreement ("Services Agreement") whereby Canco supplies additional services ("New Services") to USco, including:

• assisting in the development and implementation of a comprehensive sales plan and strategy to penetrate target verticals;

• performing weekly prospecting into key target accounts and sales calls both via phone and in person to present solutions;

• assisting in the preparation of term sheets and proposals for delivery to prospective clients;

• assisting in the negotiation of contract terms under specified guidelines and establishing baseline contracts for acceptance and execution by USco;

• use of the Canco website for the limited purpose of providing a portal for use in communicating with purchasers and prospective purchasers of USco information services that are located in Canada; and

• attending key trade events to promote the USco information services in Canada.

Under the terms of the Services Agreement, Canco is expressly precluded from acting as agent of USco in Canada. Canco does not have contact with USco’s customers and is not otherwise involved in the supplies of information services made by USco to Canadian Customers.

Ruling

USco is not carrying on business in Canada for GST/HST purposes.

A corporation now governed by the Canada Not-for-profit Corporations Act (“Corporation A”) was registered by telephone with an effective date of March 18, 2016, later changed at its request of January 1, 2016. It has now filed returns for its reporting periods ending on December 31, 2010 though to 2016, with the returns through to December 31, 2015 being cancelled as they were for reporting periods prior to the effective date of registration. Could Corporation A backdate its registration to April 1, 2010 so as to claim input tax credits for tax paid since then? CRA stated:

In order to backdate its registration, [Corporation A] could show it was a registrant during the period in question by proving it was not a small supplier; in other words, it was required to be registered. Its other option is to show it charged GST or HST on a consistent basis during that period on its taxable supplies.

If [Corporation A] can demonstrate that it qualifies to have its registration backdated, its request, including supporting documents, should be sent to: […]

Supporting documentation should include invoices showing the GST or HST charged to its clients or documents showing how and when it exceeded the small supplier threshold.

A non-resident leasing company enters into an agreement outside Canada for the lease of industrial equipment to a Canadian lessee. The lessor acquires the equipment outside Canada and delivers it to the lessee’s Canadian facility. The lessor has no other relevant connection to Canada, e.g., agents, employees or facilities in Canada, soliciting of Canadian business, Canadian bank accounts or servicing obligations under the lease. Is it carrying on business in Canada? CRA responded:

[T]he non-resident would not be considered to be carrying on business in Canada for GST/HST purposes. The only relevant factor present in Canada in the scenario is the place of delivery, which is insufficient to conclude that the non-resident is carrying on business in Canada.

CRA found that a limited partnership, whose only asset was an interest in a real estate development limited partnership, was engaged only in the making of exempt financial services. Accordingly, a request that the registration of the upper-tier LP be changed from a date in 2016 to a date in 2013 was rejected on the basis that:

A person’s effective date of registration is the day the person first makes a taxable supply in Canada otherwise than as a small supplier.

What should a non-resident do if it wishes to voluntarily register for HST/GST purposes but does not (contrary
to CRA practice) want a corporate tax account assigned? CRA responded:

Every corporation who registers with the CRA for a GST/HST account also receives a corporate tax account as there is a legal requirement for certain non-resident corporations to file a corporate tax return. Every non-resident GST/HST registrant speaks to a CRA officer when opening an account… . If a non-resident corporation confirms they have no legal obligation to file a corporate tax return with the CRA, they can close the corporate tax account by phone or by mailing an RC145 Request to Close Business Number (BN) Account.

Company B transfers its co-ownership interest in a commercial rental property on a rollover basis to Company C, whose sole activity is to hold the property. Erroneously, Company C is not registered at the time of the transfer. However, a joint venture election appointing the other co-owner (Company A) as operator under s. 273 is made. Six months later, it is discovered that Company C was not registered for GST/HST purposes as at the transfer date, so that Company B should have collected the GST/HST on the transfer. Company B and C are part of a group which makes supplies in excess of the small supplier threshold.

a) Can Company C register for GST/HST given that an election under s. 273 deems the supplies made under the agreement to be made by the operator (Company A) and not the participant (Company C)?

b) If Company C can register, is it possible to apply for retroactive registration back to the date of the transfer? ...

d) If an election under s. 273(1) were not made between Company A and Company C, would Company C be entitled to register for GST/HST retroactively back to the transfer date given that it is making supplies by way of lease of commercial property and that it is not a small supplier?

CRA responded:

a) ...If Company C makes a taxable supply in Canada in the course of a commercial activity engaged by it in Canada, otherwise than as a small supplier, it will be required to register for GST/HST purposes. However, as a result of making the joint venture election, Company C will not include consideration from taxable supplies deemed to have been supplied by Company A on its behalf in the course of the joint venture activities when determining if it has exceeded the small supplier threshold under section 148 of the ETA unless Company A is an associate. If Company C is not required to be registered but undertakes an activity that is not part of the joint venture agreement, it may be eligible to voluntarily register if the activity is a commercial activity engaged by it in Canada. b) Retroactive registration back to the date of the transfer of the property would depend on whether Company C was required to be registered at that time under subsection 240(1) of the ETA. If Company C is currently engaged in a commercial activity in Canada as a small supplier it may voluntarily register and the date of registration will generally be the date that we receive the application for registration. d) Generally, if an election under subsection 273(1) of the ETA was not made by Company C and Company A, and Company C was making taxable supplies in Canada of real property by way of lease, then it would have been required to be register under subsection 240(1) of the ETA at the time it first made a taxable supply in Canada otherwise than as a small supplier. It will be a question of fact whether, in this situation, Company C was required to be registered at the time of the transfer of the real property.

[I]f person has provided services to the province of Alberta and has exceeded the small supplier threshold, must it be registered for GST/HST back to that time, even if it is two or three years past? After listing the situations in which a registration will be backdated, CRA responded:

…[T]he mandatory registration for GST/HST will be backdated as far as when the registration become mandatory by meeting one of the conditions shown above. The tax status of a taxable supply of a property or service does not change to a zero-rated supply when made to a qualifying entity of the Government of Alberta; rather, the entity is relieved of paying the GST/HST on the supply.

An unregistered non-resident enters into an agreement to supply and install a power generation facility inside Canada with the installation to take about eight months. Subsequently, it assigns the "in Canada" services portion of the contract to its Canadian subsidiary, and the parties and the Canadian subsidiary enter into a restated contract under which these respective roles are set out. In determining whether the non-resident "carries on business" in Canada, will the CRA look to the time of signing of the contract, or to its conclusion; and does the restated agreement represent a "novation" resulting in the cancellation of the original supply in favour of two new supplies by the resident and the non-resident? CRA essentially did not answer the 2^nd question, and respecting the 1^st stated:

The determination of whether a non-resident is carrying on business in Canada is generally made based on a complete set of facts at the time the non-resident enters into an agreement to make taxable supplies in Canada and those supplies are deemed to be made.

USco (a non-resident which is not registered) provides information to its customers including Canadian customers using its website (without direct human intervention), which is hosted on non-Canadian servers; and also purchases information from a Canadian provider. Its customers pay for subscriptions using credit cards, and USco does not have a Canadian bank account. "USco employees enter Canada on an irregular basis only."

In finding that USco was not required to register, CRA stated:

...the place from which transactions are solicited is in Canada. As discussed, the place where business contracts are made may also be in Canada....even if it were to be determined that the place of contract is in Canada based on additional information, there would be insufficient relevant factors present in Canada to conclude that USco is carrying on business in Canada for GST/HST purposes.

After stating that "the categorization of the Nominee as an active or bare trust is significant as it dictates who, between the Beneficial Owner and the Nominee, will be required to account for GST/HST under Part IX and thus who will be required to report tax with respect to the Projects," CRA went on to indicate that the nominee corporation in question was a bare trustee rather than the trustee of an active trust. CRA comments included:

[T]he beneficiaries of a bare trust would generally be considered to be engaged in commercial activities relating to the trust property. The beneficiaries would be viewed as conducting the activities relating to the trust property and would be required to register for GST/HST purposes unless an exception applied, such as the small supplier rule. They would be required to account for the GST/HST to the extent of their share of the trust property … .

[I]f the Nominee is a bare trustee, it would be not be considered as engaged in the commercial activities relating to the trust property and would therefore not be entitled to ITCs on expenses relating to the trust property. The Beneficial Owners would in that case be entitled to claim those ITCs.

…a bare trustee is not seen as carrying on any commercial activity with respect to the trust property, and thus is not eligible to register….

Indicates inter alia that the effective date of registration for someone who is required to be registered is the date it begins to provide taxable goods and services (see quote below), and that a new business number is required if a corporation merges to form a new corporation.

Depending on your situation, you may have to register for the GST/HST regardless of your GST/HST taxable sales. If so, your effective date of registration is the date you began to provide the GST/HST taxable goods and services.

The determination that a trust is a bare trust generally will result in a conclusion that only the beneficial owner should register and that the trustee should not register. However, the earning by a bare trustee of fees for its services would require the trustee to register unless one of the exemptions in s. 240(1) was available.

A non-resident company offers music discs for sale in Canada under a consignment arrangement with a distributor. The discs are both produced in Canada on its behalf by a contract manufacturer and produced in the U.S. and shipped to Canada. The non-resident would not be considered to be carrying on business in Canada provided that the contract for the sale of the compact discs to the distributor by the non-resident was concluded outside Canada.

Situs of leasing or services business

In the case of a supply of property by way of lease, factors that are typically of greater importance include the place where the property is acquired by the non-resident lessor and the place where the property is delivered to the lessee. In the case of a supply of a service that is the principal object of the contract (as opposed to a service that is merely ancillary to the supply of property), factors that are typically of greater importance include the place where the service is performed and the place where employees are located.

Ex. 1

A non-resident lessor (with a leasing business outside Canada) is considered to be carrying on business in Canada by virtue of a sale-leaseback transaction under which it purchases a conveyance from a resident registrant, with delivery under the sale agreement and under the lease-back to the resident (who will use the conveyance partly in Canada) occurring in Canada, notwithstanding no other significant connecting factors to Canada.

Ex. 2

Lease of industrial equipment entered into outside Canada, with lessee acquiring possession outside Canada and importing the equipment into Canada: non-resident lessor not carrying on business in Canada.

Ex. 3

Lease of industrial equipment entered into in Canada after the non-resident lessor has imported the equipment into Canada: non-resident lessor is carrying on business in Canada.

Ex. 8

Non-resident carrying on business in Canada where independent sales representative accepts orders and concludes contracts there, delivery is there, and advertising is directed to Canada

Ex. 9

Non-resident carrying on business in Canada where goods (manufactured outside Canada) are shipped from a rented warehouse in Canada pursuant to contracts concluded outside Canada

Ex. 10

Non-resident not carrying on business in Canada where, pursuant to unsolicited orders received outside Canada, goods are shipped directly from the non-resident's Canadian supplier to Canadian customers

Ex. 11

Non-resident not carrying on business in Canada where, pursuant to solicited orders received outside Canada, it delivers and installs specialized equipment at the customer's Canadian address

Ex. 14

Non-resident not carrying on business in Canada where it supplies downloadable audio files through its web site hosted at its main office outside Canada, notwithstanding that contracts are concluded in Canada and internet ads are directed at Canada

Ex. 15

Non-resident carrying on business in Canada where it uses web site stored on Canadian server of independent ISP to supply software to Canadian customers pursuant to contracts solicited and concluded in Canada.

"The bare trustee would not be seen as carrying on any commercial activity with respect to the trust property, and thus the trust would not be required to register under the Act."

The small supplier threshold is calculated by determining the value of taxable supplies made by the person or an associate on a world-wide basis.

How is back-dating of registrations being assigned and what is the process if the request is denied? CRA responded:

If a taxpayer who is registering voluntarily requests that a registration be backdated beyond a 30-day period…[t]he taxpayer must provide evidence that GST/HST had been charged from the date requested on a regular and consistent basis. Documentation such as copies of the sales journal, sales or service contracts or the earliest 3 to 5 invoices are generally sufficient for this purpose.

Business Enquiries (BE) telephone agents will advise taxpayers to send the required documentation to the applicable Regional Correspondence Centre (RCC). Once the request is received, RCC agents will scan the request into a searchable database that the BE telephone agents have access to. …

Requests are usually denied if there is insufficient proof. Taxpayers can resubmit the request and the appropriate proof to backdate the registration.

This interpretation essentially is an advance version of Notice [264] below. CRA stated that if a "nominee corporation is an agent and makes taxable supplies of its services of acting as an agent to the participants in a joint venture, the nominee corporation may register voluntarily if it is not required to register."

If you are a small supplier and you are engaged in a commercial activity in Canada, you can choose to register voluntarily. If you register voluntarily, your effective date of registration is usually the date you applied to be registered. However, we will accept an earlier effective date, provided that the date is within 30 days of the date the application for registration is received, regardless of the method of registration.

If listed financial institutions are not engaged in any commercial activities (e.g., zero-rated financial services), they cannot register.

6. In general, the amount of security that must be posted is set at a minimum of $5,000 and a maximum of $1 million.

7. The initial amount of security required is based on 50% of the estimated net tax of the non-resident person, whether the net tax be a positive or negative amount, for the 12-month period following registration. After that, the security required will be equal to 50% of the net tax during the person's previous 12-month period.

What are the implications of the non- resident's failure to provide the required security? CRA stated:

Subsection 240(7), outlines what the CRA can do when there is a failure to comply. Essentially, the provision states that the CRA can retain any GST/HST refund or rebate payable to a non- compliant non-resident as the required security, and any amount retained as security is deemed to have been paid to the non-resident person. Generally, the CRA would not pursue enforcement action under subsection 329(2) where a non-resident corporation failed to provide the required security.