This Report is another in our series of GST 101 Series Reports. Each Report in this series focusses on an aspect of GST/HST that is part of the "building blocks" of the system.
In this Report, we focus on the "carrying on business in Canada" requirement, which is particularly relevant for determining the GST/HST Registration requirements for non-residents of Canada.
Background on GST Registration for Non-Residents
In general, non-residents who carries on business in Canada may have to register for GST/HST if the non-resident makes a taxable supply in Canada (provided that other certain requirements are met), pursuant to ETA 240(1).
What is a Business?
"Business" is defined broadly under ETA 123(1) and "includes a profession, calling, trade, manufacture or undertaking of any kind whatever, whether the activity or undertaking is engaged in for profit, and any activity engaged in on a regular or continuous basis that involves the supply of property by way of lease, licence or similar arrangement, but does not include an office or employment".
This expansive definition ensures that a range of activities can be captured as a "business" for GST/HST purposes. Notably, unlike in the Income Tax Act, there is no requirement for a reasonable expectation of profit.
Carrying on a Business in Canada
While the ETA defines "business", it does not define "carrying on business in Canada". As a result, this question is determined by common law principles. At common law, two key tests have been used in assessing whether a non-resident is carrying on business in a particular jurisdiction:
- The place where the contract is made; and
- The location of operations from which profits arise.
However, applying these tests is not always straightforward. In particular, the second test – the location of operation from which profit arise – often requires consideration of additional elements, such as the place of delivery, the place of payment, and other aspects of how the activities are conducted.
Taxpayers can also look to the administrative guidance provided by the CRA for additional assistance. While this guidance does not replace the common law analysis, it provides useful insights into how the CRA approaches the question in practice.
"Carrying on a business in Canada" may seem deceptively simple but requires careful analysis.
Expert legal advice is strongly recommended.
The CRA's position is that a non-resident generally must have a significant presence in Canada to be considered as carrying on business here. By contrast, isolated transactions carried on in Canada, where the main business remains outside Canada, may not, on their own, be enough to constitute "carrying on business in Canada". The CRA also sets out a non-exhaustive list of factors it will consider, and, even more helpfully, provides examples of different scenarios along with its view on whether they amount to carrying on business in Canada.
Takeaways
Whether a non-resident of Canada is required to be registered for GST/HST purposes lies in the answer to the following question: Is the non-resident "carrying on business in Canada"? That may seem like an easy question, but it is often extremely difficult to answer. Experienced GST counsel is usually required.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
