Dealing with indirect taxes

While the indirect tax rules are not simple (there are more than 18 different variables used just to decide what kind of service a company offers), determining how to establish tax rates boils down to two key questions:

• What do you sell/offer/provide?
• What is the place of supply?

Read: Claim business expenses now

What do you sell/offer/provide?

What service or goods you provide is the first step in determining which tax rules apply. Rules vary depending on what’s being supplied. Often, businesses that receive commission income don’t issue a proper invoice, which makes it imperative for buyers of goods or services to maintain proper records that establish what service was offered for each transaction. Given the variety of variables at play, the best way to ensure correct guidelines are being followed is to consult a tax, or indirect tax, specialist.

Read: Tax tips for the business owner

What is the place of supply?

In terms of inter-provincial business transactions, sellers’ tax rates have far less to do with where they are than with where their buyers are. The seller is required to charge taxes applicable to the goods or services offered based on the province of the buyer.

If you own a real-estate firm that just sold a house in Edmonton, the place of supply is Alberta. If you sell tangible goods not fixed to a location, you need to be more aware of where the supply is taking place. If, for example, a vendor is located in Edmonton but sells t-shirts to a buyer in Winnipeg, the place of supply is Manitoba. If, however, a buyer picks up the inventory of t-shirts from the vendor in Edmonton, the place of supply is Alberta—despite the fact that the buyer’s business is in Manitoba and that is where the t-shirts will be sold.

Read: Canada must revamp tax rules

Intangible services are often more complicated and this is where it is especially important that you be aware of all the variables involved in any transaction. If a law firm in Vancouver is offering services to a client in Halifax, the place of supply is Nova Scotia. However, if the firm is actually billing a head office in Toronto, the place of supply becomes Ontario even though the client receiving the services is in Halifax.