0 VAT BASICS - CANADA N EXIA F RIEDMAN Comptables agréés – Chartered Accountants

1 VAT Basics - Canada VAT in Canada is called GST (Goods and Services Tax) and is imposed on goods and services in Canada, unless the supply is zero- rated or exempt In addition to GST, some Canadian provinces have their VAT whereas others impose sales tax to the end consumer only N EXIA F RIEDMAN

2 VAT Basics - Canada GST is collected and remitted at each stage in the production and marketing of most goods and services, unless the supply is zero-rated or exempt Registrants may recover GST paid on properties and services acquired in order to make taxable and zero-rated supplies N EXIA F RIEDMAN

3 VAT Basics - Canada Examples of zero-rated supplies: 1.Prescription drugs and biological substance; 2.Medical devices and functional devices; 3.Basic groceries; 4.Property in the farming and fishing sectors; 5.Exports of goods and services; 6.Certain passenger services; 7.Certain transportation services; 8.International organization and representatives N EXIA F RIEDMAN

4 VAT Basics - Canada Examples of exempt supplies: 1.Supplies of certain real properties; 2.Health care services; 3.Educational services; 4.Child care services (private or public, profit or non-profit organization); 5.Legal-aid services administrated by government authorities; 6.Supplies by charitable organization; 7.Supplies by public sector bodies (such as government, municipalities, hospitals and school authorities ; 8.Financial services (exempt under the GST system, but zero-rated under the QST system). N EXIA F RIEDMAN

5 VAT Basics - Canada  Such supplies are not subject to taxes;  The registrant that makes exempt supplies may not claim ITCs/ITRs with respect to purchases made in order to make such supplies;  According to the definition of a commercial activity, a person who makes exempt supplies does not carry on a commercial activity, and therefore, cannot be registered if he/she only carries on this type of activity. N EXIA F RIEDMAN

6 VAT Basics - Canada  Such supply is not subject to tax;  The registrant who makes such supply can claim ITCs/ITRs;  Relates mostly to: Supplies made outside of Canada/Quebec; Supplies made to Indians when the goods and services are delivered to the Indians on the reserve; Supplies made to the governments (QST for federal and GST and QST for Quebec). N EXIA F RIEDMAN

7 VAT Rates - Canada Federal6% Provinces with VAT system Quebec7.5% New Brunswick8% Nova Scotia8% Newfoundland8% Provinces with end user system British Columbia7% Saskatchewan5% Manitoba7% Ontario8% Prince Edward Island10% Alberta has no provincial sales tax N EXIA F RIEDMAN

8 VAT Registration - Canada A person, including a non-resident, must register if the person carries on business in Canada and is not a small supplier 1 Non-residents who do not carry on business in Canada may voluntary register if they are engaged in a commercial activity in Canada, regularly solicit orders for goods to be delivered in Canada, provide services in Canada or intangibles to be used in Canada Non-residents who do not carry on business in Canada through a permanent establishment may have to provide a security deposit The particular facts of each situation must be examined to determine whether GST registration for a non-resident is required or desired 1 Taxable sales equal to or less than $30,000 in four preceding quarters N EXIA F RIEDMAN

9 VAT – Canada ITCs with respect to Capital Property 1.Under the GST system, financial institutions may claim Input Tax Credits (ITC) based on the extent of the property’s use in commercial activities. 2.With respect to purchases of passenger vehicles and aircraft, partnerships follow the rules that apply to individuals. 3.The portion of the cost of passenger vehicles and aircraft giving entitlement to an input tax credit is limited to the capital cost threshold for income tax purposes. 4.ITC = CCA x 6/106 (for 2007 and after) 1. 5.Individuals may not claim ITC’s if the percentage of use of the capital property for personal purposes is higher than 50%. 6.A public service body may elect to have the rules respecting all registrants apply. 1 Prior to 2006, ITC = CCA x 7/107. N EXIA F RIEDMAN

10 VAT – Canada ITCs with respect to Capital Property Amount thresholdAssigned reporting period Other possible period More than $6,000,000Monthly 1 None Between $500,000 and $6,000,000 Quarterly 1 Monthly $500,000 or lessAnnual 2 (with or without instalments) Monthly or quarterly 1. Return and taxes are due 1 month after the end of each month. 2. Annual return in order to reconcile the instalments and taxes payable in the 3 months following the end of the year. An individual who has business income < $500,000 and whose year end is December 31st has until June 15th to prepare his/her GST/QST return but only until April 30th to pay the taxes due. N EXIA F RIEDMAN