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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)

As reviewed in our GST Registration Report, a major exception to the GST registration requirements in s. 240 of the Excise Tax Act ("ETA") applies to non-residents, who do not carry on business in Canada.

This GST 101 Report focuses on what "Residency" means in this context.  Our next Report will address "carrying on business".

What is Residency?

Non-resident is defined in s. 123(1) as “not resident in Canada”.  This negative definition leaves many questions unanswered. The true meaning of resident versus non-resident is fleshed out in s. 132.  Section 132 contains a series of provisions which deem different taxpayers to be resident for GST/HST purposes.  Those deeming provisions place conditions on the general legal principles which ordinarily operate to determine who is a resident.

For corporations, this means that residency turns on whether the corporation is incorporated or continued in Canada without being continued anywhere else.  For partnerships, and several sorts of informal associations, residency depends on where the constituent members are located.  While for individuals, the residency inquiry under the ETA begins with provisions of the Income Tax Act (ITA). Specifically, the paragraphs under ss. 250(1)(b) through (f).

Permanent Establishment

Another special rule in s. 132 deals with “permanent establishments”, which are defined in section 123(1) of the ETA.  A permanent establishment exists where the taxpayer has a fixed place of business in Canada through which the taxpayer makes supplies.  There are two aspects of the definition.  First, there must be a space, over which the taxpayer exercises control in Canada with continuity or permanence and a constant presence or ordinary routine.  Second, supplies must be made through the alleged permanent establishment.  This requirement demands that the business be “an essential and significant part of the overall business activity of the person”.  Check out the CRA's views here.

For both findings, there is no single dispositive factor.  Instead, both are findings of fact which depend heavily on the context of the individual taxpayer.

Takeaways

Determining "residency" is the first real step in determining whether a business located in Canada, the US or elsewhere may be required to be registered for GST/HST purposes.  Even if the taxpayer is a "non-resident" of Canada, businesses that carry on business in Canada will still be required to be registered.  While those that do not, will generally escape the registration requirements.

For help with determining non-resident registration rules, click here.

Download a PDF copy of this Blog here.