Donna Mazerolle & Associates Newsletter

GST/HST Place of Supply Rules

This months newsletter continues the trend established in the first 4 editions of providing you with short, succinct summaries that will help you better understand and navigate Canada’s tax system.
The examples provided may or may not apply to your situation. The key is understanding that the examples used in this and previous newsletters, demonstrate that lack of planning, an oversight, or “wrong” decision in any area concerning your personal and businesses tax obligations can create “big” problems should you be challenged by the CRA (Canada Revenue Agency).
When it comes to your personal and business finances, investing and taxes, you want to make sure you’re following the rules established by the CRA.
This month we cover three topics:
1. GST/HST Place of Supply Rules
2. Common-law Breakdowns
3. Tax Free Savings Accounts (TFSAs)

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GST/HST PLACE OF SUPPLY RULES

Clients often ask which sales tax, GST or HST, will apply in a particular situation. To answer them, we look to the GST/HST “place of supply” rules. While these rules can get very complex, the best place to start is to look at the most basic rules for sales of goods and/or services.

For the sale of tangible personal property (“TPP”), the general rule is that a supply takes place in the province to which the vendor delivers the TPP, or where the vendor makes the TPP available to the purchaser.

If the vendor ships the TPP to a province on a common carrier that it has arranged itself, the destination province is the place of supply. But if the vendor ships the TPP to a province on a common carrier that the purchaser has arranged, the province where possession of the TPP is given to the common carrier is the place of supply.

Also, if a vendor sends the TPP via mail or courier to an address in a province, it is that province that is the place of supply.

This is why we often say that both GST and HST are “destination-based” taxes, and why it is important to determine that destination.

For a supply of a service, the general rule is that a supply takes place in the province noted in the customer’s address. In many ways, it will not matter where the service provider is located – the place of supply will be the province in the purchaser’s address.

Complexities arise if you have more than one address for a customer (such as a head office address as well as a branch office address), or if the service is performed in more than one province.

Keep in mind that the GST/HST place of supply rules are not integrated with provincial sales tax rules. It is possible that both GST/HST and PST can apply to some services!

Remember…these are the most basic “general” rules for sales of goods and supplies of services. There are many scenarios that will fall outside the general rules. For a detailed discussion of these, look to CRA’s Technical Information Bulletin B-103, “Harmonized Sales Tax – Place of supply rules for determining whether a supply is made in a province”.

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COMMON-LAW BREAKDOWNS

In February, 2011, the Supreme Court of Canada ruled in two cases from Ontario and British Columbia that in a breakdown of a common-law relationship, each of the persons should be entitled to fair compensation from the other person for making sacrifices such as giving up a career in support of a partner when entering into a common-law relationship.

The Court noted that where both persons were together for the common good with each making extensive, but different, contributions to the welfare of the other and as a result having accumulated assets, the money remedy for unjust enrichment should reflect that reality.

The money remedy should treat the claimant as a co-venturer, not as the hired help.

The Ontario case was related to an Ottawa couple, who had two children and lived together for twelve years before separating.

The Supreme Court found that Ms. Vanasse should get $1 million in compensation as her portion of the wealth for the period when she gave up her job, moved to Halifax and stayed at home to take care of their two children. Mr. Seguin’s business was eventually sold for $11 million.

The Court also awarded Ms. Vanasse legal costs for the lengthy battle.

The Court emphasized that a Partner who has contributed substantially to a business, property or another success of the other’s career, should benefit commensurate with that contribution.

This decision pertains only to common-law couples as asset divisions in marital separations are governed by a strict formula.

The British Columbia case involved a couple who lived together for twenty-five years. Both persons worked for most of the time and contributed to their common good in a variety of ways. Ms. Kerr successfully claimed a share of property that was in Mr. Baranow’s name claiming that he would be “unjustly enriched” if he was permitted to keep most of the share of the asset.

RETROACTIVE SPOUSAL SUPPORT
In a March 18, 2011 Technical Interpretation, CRA notes that the $18,750 lump-sum payment paid to the wife is not deductible nor should it be included in the income of the wife on the basis that the $18,750 is not for amounts that were payable on a periodic basis.

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TAX FREE SAVINGS ACCOUNTS (TFSAs)

In a January 11, 2011 CRA Newswire Release, CRA notes that if a person contributed to a TFSA $5,000 in 2009 and only $2,000 in 2010, then you could contribute $8,000 in 2011. This includes the $3,000 unused contribution room from 2010 plus $5,000 for 2011.

In another example, CRA notes that if you contributed $5,000 in both 2009 and 2010 and then withdrew $10,000 in November 2010, your contribution room for 2011 would be $15,000. This is calculated using your annual dollar limit of $5,000 for 2011 plus the $10,000 withdrawal made in 2010. Withdrawals are not added back to your contribution room until after the end of the year.

Caution!
CRA also notes that if you have more than one TFSA, you can transfer funds directly from one of your TFSAs to another of your TFSAs without affecting your contribution room. The direct transfer must be completed by your financial institutions.

However, if you withdraw funds on your own from one TFSA and contribute those same funds to another TFSA, the re-contribution will be considered to be a new contribution. As a result, your TFSA contribution room will be affected and you may be subject to a tax on excess contributions.

If your contributions in a year exceed your TFSA contribution room, you will be subject to the TFSA tax on excess contributions of 1% per month on your highest excess TFSA amount in each month. This tax will accumulate until the excess amount is withdrawn.

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Should you have any questions about the topics above, or need guidance on strategy, business plans, accounting or bookkeeping for your business, call Donna Mazerolle at 506-657-067 or contact us.