Tax & Trade Blog

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GST 101: RESIDENT VS. NON-RESIDENT

GST REGISTRATION DEPENDS ON RESIDENCY

This is the second in our series of "GST 101 Reports", written with a view to educating our readers on the basics of Canada's GST/HST system, and building towards more in-depth discussions to come.

This Report deals with the concept of "Residency" which is a bedrock issue when determining whether businesses are required to be registered for Canada's GST/HST System.

Why is Residency Relevant?  (Special Non-Resident Rule)

A taxpayer who ceases to be GST/HST registrant can be hit with a hefty tax bill due to subsection 171(3) of the Excise Tax Act (the “ETA”), which in effect triggers a deemed disposition, which with other provisions in the ETA, forces the person ceasing to be a registrant to self-assess GST/HST on the fair market value of any remaining property.

This is an often over-looked consequence of the wind-up of commercial activities, and is aimed at putting such a business on the same footing as any other person acquiring property for non-commercial activities: to effectively have acquired that property on a fully GST/HST paid basis.

A recent case illustrates this concept, as well as the trouble that can come with pre-mature cancellation of one’s GST/HST registration number (which does not necessarily equate to ceasing to be a “registrant”).

The CRA has a mandate to improve compliance of GST/HST registrants and to encourage GST/HST registrants to meet their filing requirements.  As part of its commitment to this mandate, the CRA will be implementing changes to its current processes.

Non-residents carrying on business in Canada must be cognizant of the potential to be involuntary registered for the GST/HST. 

Subsections 241(1.3) to (1.5) of the ETA (which came into effect in June 2014) empower the CRA to unilaterally register a person who has not registered for GST/HST but, in the CRA’s view, is required to do so. The budget states that these amendments will strengthen GST/HST registration compliance and help the CRA to combat the underground economy.