How Does GST/HST Apply when Exporting Tangible Goods from Canada?
As Canadian companies continue to look for customers in other parts of the world, they must ensure that they take into consideration that Canada’s GST/HST rules are being adhered to when exporting goods outside of Canada.
Tangible goods that when sold are normally subject to the GST/HST to consumers within Canada, alternatively may not be subject to GST/HST when it is an export from Canada.
In case of exported goods, they are referred to as “zero-rated” goods. Zero-rated goods are actually taxable supplies for GST/HST purposes, they are just taxable at 0%. As a result, any inputs into the sales of zero-rated goods that are subject to GST/HST, can have the taxes paid claimed as an input tax credit.
When GST/HST does not have to be charged or paid
According to the Excise Tax Act and the Canada Revenue Agency (CRA), for an exported good to be zero-rated for GST/HST purposes, the following must apply:
1. When the purchaser of the goods takes delivery of the goods in Canada:
- the goods must not be excisable goods, such as beer and tobacco
- the purchaser is not the consumer or end-user of the goods (i.e. a consumer is usually an individual who is buying the goods for his or her personal use)
- the purchaser exports the goods as soon as is reasonable in the circumstance after it has been delivered
- the purchaser does not buy the goods to consume, use, or supply within Canada prior to exporting them
- after buying the goods and before exporting them, the purchaser does not further process, transform, or alter the goods within Canada, unless it is reasonably necessary or incidental to transport of the goods
- satisfactory evidence, for audit purposes, must be kept to prove that the purchaser has exported the goods
- if the product being exported is electricity, crude oil, natural gas, or any good that can be transported by means of a wire, pipeline, or other conduit (and the purchaser is not registered for GST/HST purposes)
2. If the goods are not a continuous transmission commodity that is being transported by means of a wire, pipeline, or other conduit, and the supplier:
- ships the goods to a destination outside Canada that is specified in the contract for carriage of the goods
- transfers possession of the goods to a common carrier or consignee that:
- is retained to ship the property to a destination outside Canada
- is retained either by the supplier on the recipient’s behalf or by the recipient’s employer
- sends the goods by mail or courier to an address outside Canada
If the conditions outlined above for zero-rating the shipment of goods are not met, GST/HST must be charged (essentially the purchaser has to pay the GST/HST).
The importance of producing and keeping proof of exportation
In regard to proof of exportation, shipping documents should be retained. The documents must show the destination and delivery to a place outside of Canada.
In our experience, we have seen a number of instances where a non-resident purchases goods in Canada, and the eventual plan is to export the goods, but they are held in Canada for storage for a period of time. In this scenario, the goods may not qualify for zero-rating as the goods may not be seen by the CRA not being exported as soon as is reasonable in the circumstances.
If you are exporting goods outside of Canada, it is prudent to ensure your system is charging the appropriate level of GST/HST, as well as ensuring your proof of export is kept on file in the event of a CRA audit.