HST Rules for Intangible Personal Property in Canada

HST Rules for Property Such as Software, Passes and Memberships

Travel Pass
Christopher Steer / Getty Images

The general place of supply rules for charging Harmonized Sales Tax (HST) on intangible personal property in Canada, such as software, franchises, travel passes, memberships etc. are:

1. "Supplies of intangible personal property that can be used in Canada that can only be used primarily (more than 50%) in the participating provinces will be deemed to be made in a participating province and subject to HST.

2. Supplies of intangible personal property that can be used in Canada that can only be used primarily (more than 50%) outside the participating provinces will be deemed to be made in a non-participating province and subject to GST.

3. The place of supply for supplies of intangible personal property that can be used in Canada that can be used other than only primarily in the participating provinces and other than only primarily outside the participating provinces will depend on a number of additional factors." (Harmonized Sales Tax: Place of supply rules for determining whether a supply is made in a province, GST/HST Technical Bulletin B-103, Canada Revenue Agency, pp. 9-10).

In the case of Rule #1, when "the participating province of greatest proportion of use can be determined" in a case of tangible personal property that can only be used primarily in participating provinces, that province's HST rate will be applied.

When "the participating province of greatest proportion of use cannot be determined" in a case of tangible personal property that can only be used primarily in participating provinces, the tax rate to be applied is also determined by:

a) the value of the consideration for the supply of the intangible personal property – if it's $300 or less, and the supply is made through a permanent establishment of the supplier located in the province in the presence of an individual who is, or who acts on behalf of, the recipient, or through a vending machine situated in the province, and the intangible personal property can be used in the participating province, HST would be charged (Ibid., p.

11).

b) the address of the recipient – If the rule above does not apply (the consideration is more than $300 etc.), HST will be charged on the supply of the intangible personal property if:

  • "in the normal course of business the supplier obtains an address that is... in the province, and
  • the intangible personal property can be used in the province." (Ibid., p. 12).

c) the highest tax rate among the participating provinces - "If the supply is not deemed to be made in a participating province under Rule 1 or Rule 2 the supply of the intangible personal property is proposed to be made in the participating province for which the tax rate is the highest among the participating provinces in which the property can be used" (Ibid., p. 12).

2) Rule #2 concerning the supply of intangible personal property that can only be used primarily (more than 50%) outside participating provinces is perfectly clear; you would not charge HST, although you would charge GST.

3) As for Rule # 3 concerning intangible personal property that can be used other than only primarily in participating provinces and other than only primarily outside participating provinces, where the place of supply "will depend on a number of additional factors", I think this example is particularly illuminating:

"A registered supplier makes supplies from its business address in Ontario of monthly subscriptions to its Web site that provides subscribers who are consumers with a right to access and use digitized content on the site, including information in a database and images and the right to download a copy of the digitized content. The supplier has clients throughout the world. There are no restrictions with respect to where subscribers may use the intangible personal property. When subscribers pay for their subscription, it is the supplier's normal business practice to obtain a home address of the recipient.
The Canadian rights in respect of the digitized content can be used less than primarily in the participating provinces and less than primarily outside the participating provinces. Also, in the normal course of business, the supplier obtains a home address of the recipients. Where the supplier obtains a home address of the recipient in Canada that is in a participating province, the supply of the intangible personal property is proposed to be made in that province and subject to HST. Where the supplier obtains a home address of the recipient in Canada that is in a non-participating province, the supply of the intangible personal property is proposed to be made in that province and subject to GST at a rate of 5%. Where the home address of the recipient obtained by the supplier is outside Canada the application of tax in this example would be based on Rule 3..."(Example 35, Harmonized Sales Tax: Place of supply rules for determining whether a supply is made in a province, GST/HST Technical Bulletin B-103, Canada Revenue Agency, p. 16).

So in many cases, you apply tax (GST, HST or none) depending on the address of the recipient. But be leery of depending on the home address to decide whether or not you should be charging HST!

"If the supply of the intangible personal property is not deemed to be made in a province under Rule 1 or Rule 2, the supply is proposed to be made in the participating province for which the rate for the provincial component of the HST is the highest among the provinces in which the property can be used. If two or more of the participating provinces in this case have the same rate for the provincial component, HST will be required to be charged by the supplier using that particular rate" (Ibid. p. 18).

The examples given in the GST/HST Technical Bulletin cited involve an individual who supplies no address, and several non-resident examples – and all call for HST to be charged (specifically, the HST rate of the province with the highest HST rate as the intangible personal property in these cases could be used in more than one participating province).

See also:

HST: What Your Small Business Needs to Know

How Does HST Apply to Services?

Charging Provincial Sales Taxes on Online Sales

Charging HST on Services

When Do You Need to Register for the GST/HST?

GST/HST Zero-Rated vs. Exempt Goods and Services