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Sales Strategy
Independent Sales Representatives and the GST: To Tax or Not to Tax Examples
Mar 1, 2010 | Charlie Eansor lock

Examples

The following examples have been provided to illustrate whether a sales representative’s services are zero-rated:

Example 1
Bob is located in Toronto and is a sales representative of Sturdy Steel Company of Cleveland, Ohio.   Bob calls on manufacturers in and around the GTA and obtains orders for Sturdy Steel products from local manufacturers.  Bob sends the orders to Sturdy Steel for fulfillment.  Sturdy Steel sells the steel products to the GTA manufacturers F.O.B Sturdy Steel’s shipping dock and the GTA manufacturers import the steel products into Canada.  Sturdy Steel pays a commission to Bob of 5% of the selling price of the steel.  Is Bob’s commission zero-rated or does Bob have to collect GST?

Bob’s commission is zero-rated provided Sturdy Steel is not a resident of Canada.  The service is that of procuring orders for a supply made outside Canada by Sturdy Steel. The CRA may require Bob to provide evidence that Sturdy Steel is a non-resident, and that the steel products were delivered outside Canada.

Example 2
Mike is located in London, Ontario and represents Generator Corp. of Buffalo, New York.  Mike makes a trip to Chicago and manages to obtain orders for Generator Corp.’s generators from a contractor in Chicago.  Generator Corp. sells the generators to the contractor F.O.B. Chicago and pays Mike a 7% commission on the sale. 

Mike’s commission is zero-rated provided Generator Corp. is not a resident of Canada.  In this instance, the goods are delivered by the supplier to the ultimate customer but, because that destination is outside Canada, the supply by Generator Corp. is considered to have been made outside Canada.  The CRA may require Mike to provide evidence that Generator Corp. is not a resident and that the goods were delivered outside Canada.

Example 3
Ken is located in Pickering, Ontario and represents Unique Food Company of Detroit, Michigan.  Ken calls on restaurants and specialty food retailers in Ontario promoting the products of Specialty, and leaves catalogues and order forms.  Orders placed by the restaurants or retailers with Unique are fulfilled by Unique and the products are sent by Unique directly to the restaurants and retailers in Ontario FOB destination.  Unique pays Ken a commission of 10% of the sales value of the orders.

Ken’s commission is zero-rated provided Unique is a non-resident and is not registered for GST.  Despite that the goods are delivered in Canada, the fact that Unique is not registered for GST deems the goods to have been delivered outside Canada and thus make the sale of the goods a supply outside Canada.  The CRA may require Ken to provide evidence that Unique is not a resident of Canada and is not registered for GST.

Example 4
Bruce is located in Windsor, Ontario and represents an automobile parts manufacturer from Detroit.  Bruce is paid a commission for sales orders he obtains for the Detroit parts manufacturer from an automobile manufacturer in Windsor based on a percentage of the selling price of the parts.  Bruce also ensures that once the automobile parts are imported into Canada, they are staged properly so that the proper quantity of parts arrive at the automobile manufacturer’s premises to coincide with the manufacturer’s production schedule.  Bruce charges the Detroit parts manufacturer an additional fee for the staging services.

Bruce’s sales commission is zero-rated provided the parts manufacturer is not a resident of Canada and not registered for GST.  However, Bruce’s sequencing services are likely not zero-rated because that service is not a service of procuring orders and relates to the parts while the parts are in Canada.

Example 5
Ken is located in Vancouver, British Columbia and represents a San Francisco company that sells computer modems to consumers.   The San Francisco-based company ships the computer modems in bulk to Ken, who stores the modems in a warehouse.  When Ken obtains a sales order for the modems from a Canadian purchaser, he ships modems from the warehouse to the Canadian purchaser, and charges the San Francisco company a commission in respect of the sale.

Ken could be responsible for having to collect GST on his commissions on the basis that he is procuring orders for a supply made by the San Francisco-based company in Canada.  Despite that the San Francisco company may not be registered for GST, it is likely required to be registered for GST in the eyes of the CRA, because it fills Canadian sales orders from inventory maintained in Canada.  If the San Francisco company is required to be registered, the supplies it makes under these circumstances to Canadian residents are considered to be supplies made in Canada, and there would be no zero-rating of the sales commission.

 

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