Many non-resident businesses that are registered for Canadian GST/HST purposes are receiving notices from the Canada Revenue Agency (CRA), requiring them to post additional security within a particular time frame. This appears to be a recent, renewed focus by the CRA on non-resident GST/HST registrants' security requirements.
Subsection 240(6) of the Excise Tax Act requires certain non-residents to post and maintain security in an amount and form satisfactory to the minister1. The security must be in the form of cash, certified cheque, money order, or bond approved by the CRA.
About the requirements
The requirement to post security rests with non-residents who are required to register for GST/HST under the general framework, as well as those who voluntarily register. A registrant with a permanent establishment in Canada, through which it makes supplies, is generally not required to post security unless the only permanent establishment in Canada is a fixed place of business of another person.
The amount of security required is set out in the CRA's administrative policy as 50% of the net tax (positive or negative) in a 12-month period.
No security is required where the non-resident has CAD 100,000 or less of taxable supplies in the 12-month period, and CAD 3,000 or less of net tax payable or receivable. Otherwise, the minimum security required is CAD 5,000 and the maximum is CAD 1,000,000.
If the security is not posted, the CRA may withhold any GST/HST refunds and transfer the amounts to the registrant's non-resident security account until the requirement is satisfied. Although the CRA could potentially impose penalties or prosecute a person for failure to provide security, it has previously indicated that it would not pursue enforcement action for failure to post it. Likewise, the CRA cannot apply for an income tax refund against a non-resident's GST/HST security requirements.
How BDO can help
Navigating Canadian tax obligations as a non-resident business can be complex, including GST/HST security requirements. Our team can assist you in understanding your obligation to post security, as well as exploring potential tax-efficient alternatives that can minimize the amount of security you are required to post.
Additionally, we can guide you through reviewing your registration requirements and evaluating whether de-registration under the general framework or registration under the simplified regime may provide relief from this requirement.
Contact
Brian Morcombe, Partner, Indirect Tax Practice Leader
Glen Cassidy, Director, Indirect Tax Services
1 ETA 240(6); 329(2); GST/HST Memoranda Series 2.6; Canada Revenue Agency/Canadian Bar Association Roundtable, March 6, 2014
The information in this publication is current as of May 13, 2024.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.