Our accounting practice recently purchased a course from a Canadian company registered in Ontario. We are a Canadian company registered in Nova Scotia. We are GST/HST registered. So is this Ontario company.
We received the invoice for the course and it didn’t show any GST/HST amount. I contacted their support team and they replied with the following:
As we sell our products internationally we do pay HST but we pay it as an expense.
We don’t collect it from our customers.
That being the case there wouldn’t be a claim you could make as you’ve paid the price less HST.
If you’d like to double check with your accountant you’re welcome to do so.
I am a tax professional but not specialized in indirect tax. Is this something that anyone has ever heard of? Two participating companies transacting and the seller “doesn’t collect HST.”
I’m thinking we just claim the ITC as if it was charged (i.e. final sales price / 1.15 x 0.15 ) and the expense would be the final sales price with the HST backed out.
“I’m thinking we just claim the ITC as if it was charged”
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It would not be legal to claim an ITC when you did not pay the GST/HST.
A CRA Auditor would immediately reverse it and not be amused.
They would ask you “Just exactly where, sir, are you reading the GST/HST amount on their invoice, and the vendor’s GST registration number on their invoice to support your claim?”
[The vendor is likely supposed to be registered, but you have already been told by them that they are not - or maybe, but they are somehow registered without obtaining a GST registration number, which they cannot supply to you, so you know that an ITC claim by you would be false without such evidence.]
Or you could ask them if they know what country Nova Scotia is in…
Perhaps Canada does not extend any further East than Ontario…
But how can they “pay HST but don’t collect it from their customers.” I take that to mean they are collecting it, but just not showing it on their invoice. They provided me their GST/HST registration number, which I’ll put with our bookkeeping record for the transaction.
If their invoice to you doesn’t have HST, then they don’t charge it. Having GST number doesn’t mean they charge GST/HST. As a business they tend to pay for expenses on which they pay sales taxes. They most likely use their registration number to recover those paid taxes through ITCs. As per their offer, maybe you should talk to their accountant and find out and let us know as well?
The wording from their support email back to me made it seem like they do charge it but they bake it into their prices. And I never really got an invoice (that’s what started this). We only got an email confirmation with the total amount paid displayed. I requested an invoice with GST/HST shown and that’s when they said they pay HST but don’t collect it. It made no sense to me.
When you say “having GST number doesn’t mean they charge GST/HST,” wouldn’t it be more accurate to say “Having a GST number and selling to another GST registrant means they SHOULD charge HST but doesn’t mean they DO.”
I did request to speak to their accountant actually. But I haven’t heard back.
EDIT TO ADD:
When stores have “we pay the tax” events, it’s not like those stores can suddenly choose to not collect GST/HST. It’s just that essentially everything in the store is discounted 15% (or whatever your sales tax rate is in a given jurisdiction). GST/HST is still shown on those receipts.
You said courses and I assumed educational courses. If they are indeed educational then my initial statement is correct. Educational products are either exempt from sales taxes or the taxes are zero-rated.
As for why they didn’t provide you with a proper invoice is weird and please do tell us once you find out the whole story.
It’s not an educational course. Sorry for not clarifying that sooner. I do know some of the intricacies of zero-rated vs. exempt income etc. I have a lobster fishing client who always has large GST/HST refunds since their entire revenue stream is zero-rated but they claim ITCs on all the fuel for the boat. Most of their other expenses are zero-rated so it’s really just the boat (fishing gear and bait is all zero-rated for the most part and they can get an income tax credit for the gear).
This course is similar to CPA PD courses but in a different field. CPA NS charges HST on it’s PD course fees. This company should as well. It’s not an accredited educational institution or a vocational school etc.
I agree that if I can’t obtain an invoice with GST/HST on it I can’t claim the ITC. However, it seems this company is paying GST/HST per their email to me. So where is it coming from, how do they determine the amount they need to pay?
The only way I can think of is that they are taking their sales and backing out GST/HST after the fact.
Perhaps they are not expressing themselves correctly. They pay GST/HST on their purchases as do we all. If they buy stamps for mailing and pay $100 and pay $115, they claim $100 as an expense and $15 as HST paid. If they are a non profit and their taxable sales are below the limit for non profits, they may not charge GST/HST on their sales but can claim a 50% refund on HST paid out.
They are not an NFP. They are a successful company specializing in helping businesses develop membership-based revenue streams. It’s almost like a consultancy company. Here is their website.
From their own page:
As a young startup company based in Brantford, ON Canada, we teach entrepreneurs how to turn what they know, love, and do into recurring revenue through memberships.
My wife and I are working on a “DIY CFO” course that will help small business owners with their day-to-day business activities. We’re applying all the things we have learned in helping small businesses get off the ground with their accounting, tax, payroll, etc.
We are taking this course to help us with developing our own DIY CFO course and use a subscription/membership-based pricing model.
I honestly think you might be right or at least the support person is mistaking what I mean by GST/HST.
Their most recent reply back to me as me wondering if they think I’m talking about just basic income tax. Which makes way more sense when I replace every time they wrote “sales tax” with “income tax” in their replies:
“We do pay [income tax]. We don’t collect [income tax] from our customers but we pay it as an expense.”
Which would be correct.
I wonder if they think they don’t need to register for GST since the majority of their sales are exports and that they haven’t hit $30k domestic sales, which would be incorrect thinking as exports are simply zero-rated not exempt so they still count towards the $30k thresholds.
That might be a logical conclusion, but the fact they provided you with not only one but 2 GST/HST numbers (as evidenced in a previous post) means that the $30k threshold is mute. Once you register for GST/HST you are required to collect GST/HST on taxable sales regardless of whether your level of revenue is over or under $30,000.
Their reply to you, as quoted by you, clearly says they do not charge HST. You cannot claim what you didn’t pay.
As also noted by others, most educational courses are tax exempt in HST Provinces (in BC we pay GST on them)
I already clarified that I won’t be claiming the ITC until I get an invoice that shows it. I’ve also already clarified that it’s not a tax exempt educational course. I’m in talks with their support team and have a meeting with their accountant next week. They provided me their HST registration number, which means they are HST registered. They mostly sell exports (the courses are mostly sold to US customers) so maybe they just aren’t used to selling to a domestic entity.
My main point of the post was asking about if anyone ever heard of paying the HST as an expense without collecting it? Is that even allowed? I didn’t think it was. When retailers have “We pay the tax!” events it’s not that they aren’t collecting the tax, they just adjust their prices on everything such that the after-tax price is the same as the previous before-tax price.
Again, I’m not an indirect tax specialist so I’m genuinely curious if this is something that’s allowed.
My best guess is they’re uninformed as to their receipting / invoicing obligations under the Excise Act [Subsection 223(1)] and they’re simply opting to total up their taxes by jurisdiction and remit accordingly. For example, if they sell an item to someone in a 15% HST province for $100, they remit $13.04 in HST (ie. the amount deemed to be collected on $100 including HST at 15%). If they sell that same item to someone in another country, they keep the entire $100.
Alternatively, it’s possible they consider themselves exempt under Part III of Schedule 5 (ie. perhaps they qualify as a vocational school if they are providing training recognized by a regulatory body). As you’re aware, this would provide that they would not be entitled to claim ITCs on related expenses, thereby leading to their assertion that they “pay it as an expense”. When they seemed to indicate that they “bake it into their prices”, they could mean they factored in the non-refundable HST they paid when determining their prices. As for CPA NS, they may have elected to collect HST (election is referenced in Schedule 5, Part III Paragraph 6) or otherwise simply don’t qualify for any number of reasons.
For reference, here’s an excerpt from Subsection 223(1) of the Excise Act which shows their disclosure obligation. If it were me, I’d send them that reference, along with a draft invoice containing the requisite components (including their HST number) and ask them to review, amend if necessary and send it back on their stationary. Perhaps include a checkbox for them to check indicating “Services exempt from HST”. Except for the checkbox, I’ve taken that approach before with success.
Disclosure of tax
223 (1) If a registrant makes a taxable supply, other than a zero-rated supply, the registrant shall indicate to the recipient, either in prescribed manner or in the invoice or receipt issued to, or in an agreement in writing entered into with, the recipient in respect of the supply,
(a) the consideration paid or payable by the recipient for the supply and the tax payable in respect of the supply in a manner that clearly indicates the amount of the tax; or
(b) that the amount paid or payable by the recipient for the supply includes the tax payable in respect of the supply.
You were right with your first guess, which is what I also initially thought. They simply aren’t used to invoicing other Canadian businesses and didn’t include the HST on the invoice.
I learned all of this after speaking with their accountant late last week. They are sending me an updated invoice with the HST broken out.
I told their accountant about proper invoice formats and they said they would take that into consideration.
For now at least I will get my invoice and resultant ITC so I’m happy.
Perhaps include a checkbox for them to check indicating “Services exempt from HST”. Except for the checkbox, I’ve taken that approach before with success.