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Selling in US dollars to Canadian companies in Canada

By Lloyd Lindsay |

Layne asked:

I am in Canada selling in US dollars to Canadian companies. How is HST invoiced and what do I remit to CRA?

Lloyd Lindsay answered:

The Excise Tax Act of Canada sets out the rules for GST/HST, and sections 159 and 169 set out the rules for foreign currency transactions. Suppliers may invoice in foreign currency and recipients may make payments to suppliers in foreign currency. However, the exchange rate you must use is on the day the tax is payable or on such other day as is acceptable to the Minister. The day the tax is payable is the earliest of:

  1. The day your customer pays you,
  2. The day you invoice your customer,
  3. The day you should have invoiced your customer, but for an undue delay, and
  4. The day your customer must pay you according to a written agreement.

Usually, the day the tax is payable is the invoice date. But what happens when your customer later pays in foreign currency and the exchange rate has changed? The Canadian dollars you actually receive may be greater or lesser than the amount you must pay the government. Because of this, the government offers other acceptable days and methods:

  1. The day the consideration is paid,
  2. The day the foreign currency is acquired, and
  3. The average rate of exchange for the month in which tax is payable.

The first two options eliminate the exchange gains or losses a vendor might incur when paying the GST/HST to the government. The third alternative is an administrative convenience. A vendor cannot cherry-pick the method used. The vendor must apply one of the three methods consistently for at least one year. And if a vendor wants to use a different method, the vendor may ask CRA in writing for approval, which CRA may or may not give.

Where the date of conversion falls on a weekend or a holiday, the vendor should use the rate of exchange for the previous business day.

Sources for the Conversion Rates:

Where do you obtain acceptable conversion rates? Well, the government lists the following:

  • The source used for an actual conversion,
  • The source the vendor uses for actual conversions,
  • A Canadian chartered bank,
  • The Bank of Canada, or
  • The rate that the Customs Branch of Canada uses for calculating duty on imports
Where the vendor does not use the rate actually paid to convert the currency, CRA requires the vendor to use the same source consistently for at least one year. Final Comments:1. The vendor and purchaser do not have to use the same method for conversion;2. If you select a day other than when the tax is payable, you must use it consistently for at least one year;3. CRA requires a vendor to maintain sufficient documentary evidence regarding the exchange rate on the date of conversion, the method used, and the calculations for the tax to be paid, collected, deducted, or refunded; and4. Use a tax professional to determine which conversion method best suits your company.

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