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Does a Canadian company need to pay HST on commission earned?

Expert: Lloyd Lindsay

Yumi asked:

Canadian company representing a USA manufacturer earns commission based on sales in his territory. Commission is paid in U.S. dollars. Does the Canadian company need to pay HST on the commission earned? Currently the USD commission does not include the HST, as the USA company does not have HST registration and does not claim HST input tax.

Lloyd Lindsay answered:

The GST/HST rules apply to both the USA manufacturer and its Canadian agent.

Generally, GST/HST rules consider sales made by a non-resident to a Canadian resident to be made outside of Canada. However, one way or another, the purchaser will end up paying the GST/HST on its taxable purchases when they enter Canada.

On the other hand, a non-resident supplier of property or a service is required to register if the person "carries on business in Canada" and makes taxable supplies in excess of $30,000. Determining whether the USA manufacturer "is carrying on business in Canada" through its Canadian representative is beyond the scope of this answer and the USA manufacturer should seek professional tax advice.

Even if optional, the USA manufacturer should consider registering for the GST/HST because it can recover the GST/HST it pays on its Canadian costs, such as those from its Canadian representative.

The Canadian representative is a company resident in Canada and "carries on business in Canada." If the company provides more than $30,000 of taxable goods and services in a year (which includes the commissions earned from the USA manufacturer), the Canadian representative must register, collect, and remit the tax after deducting the GST/HST on its purchases.

The requirement is based on Canadian dollars, and the representative must convert the USD commission it receives to Canadian dollars to determine whether it exceeded the $30,000 limit. Also, if registered, the Canadian representative should convert to Canadian dollars the USD amount of GST/HST it charged, or should have charged, when calculating its remittance to Canada Revenue Agency (CRA). In some instances, CRA will accept USD remittances where all your calculations are in USD. However, you should check with your tax advisor for further details.

About the author

Lloyd Lindsay is a CA, a licensed Public Accountant, Chartered Professional Accountant, and a Certified Management Consultant. He completed the CICA In-Depth Tax Course in 1985 and has been in public practice for over 40 years. Also, from time to time, he teaches on a contract basis.

Lloyd is a member of the Personal Computer Club of Toronto and has hosted its Microsoft Office Special Interest Group for many years.

In addition to providing tax, accounting, and auditing services, Lloyd provides presentations on those topics and on using accounting software, PowerPoint, and MS Office programs.

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