GST/HST on exports and non-resident customers

Selling outside Canada usually means not charging GST/HST. It rarely means the rules stop applying. Zero-rating is a positive tax treatment with conditions attached, and the conditions are almost always about evidence — proving the goods left, or proving the customer was a non-resident who was not registered.

Zero-rated, not exempt

The two look identical on the invoice and behave completely differently on the return. A zero-rated supply is taxable at zero per cent: you charge nothing, and you can still claim input tax credits on the costs of making it. An exempt supply carries no tax and no credit entitlement. Almost all export relief is zero-rating, which is why exporters frequently sit in a permanent refund position. Our guide to zero-rated versus exempt supplies covers the general distinction.

Exported goods

Where goods are supplied in Canada and then exported, the CRA describes three general routes to zero-rating.

1. You ship them out

The supply is zero-rated where the supplier does any of the following: ships the goods to a destination outside Canada specified in the contract for carriage; transfers possession of the goods to a common carrier or consignee retained to ship the property to a destination outside Canada; or sends the goods by mail or courier to an address outside Canada. This is the clean case — the shipping documents are the evidence.

2. The customer collects in Canada and exports

Harder, because the goods sit in Canada in the customer’s hands before leaving. All of the following must hold:

• the goods are not excisable goods such as beer, spirits, wine or tobacco;
• the purchaser is not a consumer — generally, not an individual buying for personal use;
• the purchaser exports the goods as soon after delivery as is reasonable in the circumstances;
• the purchaser does not acquire them to consume, use or supply in Canada before exporting;
• the goods are not further processed, transformed or altered in Canada before export, except to the extent reasonably necessary or incidental to transporting them; and
• the supplier keeps satisfactory evidence, for audit purposes, that the purchaser exported the goods.

3. An export certificate

A purchaser registered for GST/HST can apply for authorisation to issue an export certificate to the supplier, which causes the goods to be zero-rated. There is also a separate Export Distribution Centre Program for authorised export-oriented, non-manufacturing businesses.

Exported services

Two easy cases first. A supplier does not charge GST/HST on services performed totally outside Canada, or on services that relate to real property situated outside Canada. Neither is really an export rule — the supply is simply outside the Canadian tax base.

The interesting category is services performed all or partly in Canada for a non-resident person. Certain of these are zero-rated, provided they are not supplied to an individual while that individual is in Canada. The CRA’s list includes:

• certain advisory, professional or consulting services;
• advisory, consulting or research services to help a non-resident establish a residence or business in Canada;
• advertising services supplied to a non-resident who is not registered for GST/HST;
• custodial or nominee services for a non-resident’s securities or precious metals;
• services of acting as an agent for a non-resident, or arranging, procuring or soliciting orders, in defined circumstances;
• services supplied to a non-resident by electronic means;
• warranty services and parts supplied to meet a warranty obligation for an unregistered non-resident;
• certain training services supplied to an unregistered non-resident, other than to individuals; and
• services of destroying, discarding, dismantling, testing or inspecting goods in defined circumstances.

Services performed on goods that were temporarily imported solely to have the service performed on them, and that are exported as soon as possible, may also be zero-rated, along with the parts supplied with them.

Intangibles: software, licences and rights

Intangible personal property is generally a right rather than a physical thing — contractual rights, options, intellectual property, licences. The rules follow a different logic:

• A supply of intangible property that may not be used in Canada is considered made outside Canada, so GST/HST does not apply at all.
• A supply of intellectual property, such as a patent or trademark, or the right to use it, is zero-rated if made to an unregistered non-resident.
• Most other intangible property supplied to unregistered non-residents is zero-rated, with exceptions — including supplies to an individual unless that individual is outside Canada when the supply is made, property relating to real property in Canada or to goods ordinarily in Canada, property relating to a non-zero-rated Canadian service, and property usable only in Canada.

The evidence file

For goods, keep the proof they left: bills of lading, carrier documents, customs paperwork, courier tracking, and the contract terms that put the destination outside Canada. For intangibles, the CRA is explicit that suppliers must verify and maintain satisfactory evidence of the customer’s registration status and residency at the time the supply is made — and, for intangibles other than intellectual property, of the customer’s physical location. Gather it at onboarding, not at audit. All of it falls under the usual record retention rules.

One more thing worth knowing: a non-resident purchaser other than a consumer may be able to apply for a rebate of tax paid on qualifying goods exported from Canada, if the goods are exported within 60 days of delivery and other conditions are met. If you have charged tax that turns out to have been avoidable, that rebate is sometimes the customer’s route back.

Domestic sales are a different question entirely — there the rate depends on the place-of-supply rules. If you sell both ways, and particularly if you are an online seller shipping in several directions, it is worth mapping each revenue stream once rather than deciding invoice by invoice.

This article is general information, not tax advice for your specific situation. Tax rules and CRA administrative positions change — confirm anything that affects a decision with the CRA or with us first.