Introduction
Starting July 1, 2010, the provincial sales taxes in Ontario and British Columbia will be replaced by a value-added tax structure and combined with the federal Goods and Services Tax (GST) to create a single, federally administered Harmonized Sales Tax (HST). The HST will be applied on most supplies of property and services made in those provinces at a blended rate of 13% in Ontario (5% federal component and 8% provincial component) and 12% in British Columbia (5% federal component and 7% provincial component). With some exceptions, the HST will apply to the same base of property and services as the GST.
It is government policy that departments charge and collect, where applicable, the GST or the HST on their taxable supplies and pay GST or HST on their purchases, as required by legislation.
New place of supply rules that determine whether a supply is made in a province generally apply to taxable supplies made on or after May 1, 2010. These rules determine whether a supply is made in a participating province and consequently subject to the provincial component of the HST. These new rules will not bring significant changes to the rules for tangible personal property and real property, however significant changes have been made to the place of supply rules for supplies of intangible personal property and services.
Nova Scotia will increase the provincial component to 10% on July 1, 2010 which will mean that the blended rate of the HST in that province will increase from 13% to 15%. The blended rate of the HST in New Brunswick and Newfoundland and Labrador is 13%.
In provinces with no HST, the Government of Canada will continue to be exempt from paying provincial sales taxes on purchases of property and services in the name of Canada. Government contractors must continue to pay the provincial sales tax as it applies to supplies of property and services made in those provinces used or consumed in the performance of their contract.
Transitional Rules
Transitional rules have been designed to ensure that the current GST and provincial retail tax systems do not overlap with the HST. They specify a number of key dates with respect to the timing for departments to account for the HST. The transitional rules apply to transactions that occur during a period that includes the implementation date of July 1, 2010.
Contracts that have been awarded prior to July 1, 2010 will not have to be amended as a result of the introduction of the HST in Ontario and British Columbia or the increase of the HST in Nova Scotia; the determination of additional taxes on those existing contracts will be settled at payment. In the same way, contracts awarded prior to July 1, 2010 will not have to be re-approved as a result of the introduction of the HST in Ontario and British Columbia or the increase of the HST in Nova Scotia.
Questions regarding the payment of additional taxes as a result of the introduction of the HST in Ontario and British Columbia or the increase of the HST in Nova Scotia on existing contracts should be directed to the person responsible to authorize payments as per Section 33 of the Financial Administration Act.
Place of Supply Rules
The place of supply rules that determine whether a supply is made in Canada and potentially subject to GST/HST have not changed. These rules are explained in Chapter 3.3 Place of Supply of the GST/HST Memoranda Series and are not the subject of this policy notification
The place of supply rules that determine in which province a supply is made, thus determining what tax applies, have been changed. These rules determine whether, and at what rate, suppliers must charge the provincial component of the HST on their taxable supplies (other than zero-rated supplies) of property and services that are made in Canada. Previously, many of the HST place of supply rules for certain property and services relied on the location of the supplier to determine whether a supply is subject to the provincial component of the HST. The new HST place of supply rules for intangible personal property and services have been changed so that, in determining where a supply takes place, there is less reliance on the supplier’s location and greater reliance on where the consumer of the intangible personal property or service is located.
The new place of supply rules are explained in the GST/HST Technical Information Bulletin B-103 (June 2010). It should be noted that this bulletin is substantially different from the one that was circulated to Acquisitions Branch personnel via communiqué on 29 March 2010. Although no substantial changes are made to the place of supply rules for supplies of tangible personal property and real property, significant changes are made to the place of supply rules for supplies of intangible personal property and services.
These changes generally apply to supplies made on or after May 1, 2010. They may also apply to supplies made before May 1, 2010 if certain circumstances exist.
Here is a brief overview of the place of supply rules that will now apply to procurements:
Tangible Personal Property (TPP)
Generally speaking, the place of supply rules for supplies of TPP by way of sale have not changed. A supply by way of sale of TPP is deemed to be made in a province if the supplier delivers the property or makes it available in the province to the recipient of the supply.
The application of this place of supply rule is generally based on the province in which legal delivery of the goods to the recipient occurs. However, for purposes of the rule, tangible personal property is also deemed to be delivered in a particular province, and not in any other province, if the supplier either:
- ships the property to a destination in the particular province that is specified in the contract for carriage of the property or transfers possession of the property to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the property to such a destination; or
- sends the property by mail or courier (the common meaning of “courier” applies for purposes of this rule) to an address in the particular province.
Bulletin B-103 should be consulted for details.
Real Property (RP)
Generally speaking, the current place of supply rules for supplies of RP are not changing. A supply of RP is deemed to be made in the province where the property is situated. Bulletin B-103 should be consulted for details.
Intangible Personal Property (IPP)
The place of supply rules for supplies of IPP have changed significantly. Although the general rules will generally continue to be based in large part on where the IPP can be used, the place of negotiation under the former rules will no longer be a factor and greater emphasis will be placed on the location of the recipient of the supply of the IPP. As was the case under the former place of supply rules, there will be specific place of supply rules that apply with respect to specific types of supplies of IPP such as IPP that relates to TPP or IPP that relates to RP. Bulletin B-103 should be consulted for details.
Services
The place of supply rules for supplies of services have changed significantly. The new place of supply rules for supplies of services are generally based on the business address of the recipient obtained by the supplier in the ordinary course of business of the supplier except for certain types of services in respect of which specific place of supply rules apply. A supply of a service that is in relation to RP or a service that is in relation to TPP are examples of services for which there are specific place of supply rules. Bulletin B-103 should be consulted for details of these rules and the other types of services that have specific place of supply rules. In cases where a more specific rule does not apply, and in the ordinary course of business, the supplier obtains more than one business address in Canada of the recipient, the supply of the service is made in the province in which the business address that is the most connected with the supply is located.
For contracts awarded by PWGSC’s Acquisitions Branch as a common service provider, it is the position of the Canada Revenue Agency (CRA) that the business address that is most closely connected with the supply is the address of the contracting authority as it appears in the contract when first awarded. The address of the contracting authority, as it appears in the contract when first awarded, will determine the province in which the supply of the service is made.
As noted above different, specific, place of supply rules apply for the supply of services in relation to TPP or RP and for other specified services. Bulletin B-103 should be consulted for details.
Client Requisitions
Clients are responsible for submitting accurate requisitions and are accountable for the estimates on their requisitions. The requisition approval must be in accordance with the client department’s internal delegation of authority. Requisitions must be funded in Canadian currency, including the applicable taxes. In cases where the exact tax treatment of a supply is not known with certainty at the time of the requisition, clients shall include an amount for taxes representing a default tax rate of 15% of the value of the procurement in the requisition. Clients must be ready to demonstrate in writing the rationale for not including the default rate upon request by the contracting officer. Clients are reminded that the amount of taxes in their requisitions that exceeds the actual amount needed for taxes for the contract does not constitute an overcommitment to their departmental budget since taxes are paid from a statutory authority distinct from their appropriated budget.
Standard Acquisition Clauses and Conditions (SACC)
Contracting officers are to incorporate the changes detailed in Annex A (below) into their procurement documents. These changes will be reflected in the next SACC Manual release scheduled for August 2010.
General Considerations
Every time an address is required in the procurement process, the address shall indicate a precise geographical location in a province. References to the National Capital Region (NCR) or a postal code are no longer acceptable.
Only the CRA has authority to provide tax advice. Contracting officers are instructed to redirect any questions regarding GST or HST coming from outside Acquisitions Branch to the CRA.
During the procurement process, contracting officers should obtain rulings directly from the CRA. The telephone numbers listed below should be used and Acquisitions Branch contracting officers should clearly identify themselves as such. In the event that the CRA agent is requesting that a draft contract be sent for ruling, first the contracting officer must make sure that the document bears the proper classification markings, then contracting officers may send the documentation using the Internal Credential Management (ICM) system (myKEY) via e-mail. This system may be used for documents bearing the designation Protected “B” or below. Otherwise, contracting officers should follow the transmission methods outlined in the departmental Classification Guide. CRA agents receiving these draft contracts all have Secret security clearances. In the event where sending a draft contract could be problematic for security or other reasons, the contracting officer should contact the Acquisitions Branch Contact identified below.
The following address should be copied whenever correspondence is exchanged via e-mail between the CRA and Acquisitions Branch contracting officers: APPDpublications.DPPApublications@pwgsc-tpsgc.gc.ca.
Acquisitions Branch Contact
Olivier Lalande
Acquisition Policy and Process Directorate
Policy, Risk, Integrity and Strategic Management Sector
Acquisitions Branch
Public Works and Government Services Canada
819-956-0166
olivier.lalande@pwgsc-tpsgc.gc.ca
Canada Revenue Agency Contact
Contact information to be provided under separate cover.
Annex A: Changes to the SACC Manual, Modifications to General Conditions 2029, 2010A, 2010B, 2010C, 2030, 2035 and 2040:
Effective immediately, the Section entitled Taxes in the General Conditions is amended as follows:
1) In subsection 2(a)(i):
Delete: Ontario 11708174G and British Columbia R005521
2) Replace subsection 2(c) with the following:
Federal departments must pay the HST in the participating provinces of Newfoundland and Labrador, Nova Scotia, New Brunswick, Ontario and British Columbia.