In Ontario, charging HST for consulting services is an immediate, required practice. The rest of Canada also shares this practice but conforms with respective provincial regulation. However, regardless of provincial regulation, consulting fees in Canada, such as those you might incur by consulting a lawyer or other such professional, are always taxed.
But what about consulting services provided to non-residents?
While there are some exceptions, generally speaking, clients who reside outside of Canada are exempt from paying taxes (PST, GST, HST) on such services. The Government of Canada’s publication, Exports – Services and Intellectual Property, states that “An advisory, consulting or professional service made to a non-resident person is zero-rated provided the supply is not specifically excluded”. Zero-rated refers to services, or “supplies”, that are exempt from GST/HST taxation. More specifically, these services are “taxable at the rate of 0%”. The supplier of the service still pays GST/HST on the resources required to produce that service but will be entitled to claim Input Tax Credits (ITC) on those expenses.
Said differently, if you are providing a zero-rated service, you can deduct the GST/HST on the expenses associated with producing that service against the GST/HST that you would have otherwise had to remit, which can result in a credit.
Which services are zero-rated?
Advisory, consulting and professional services are big categories made up of many services, some of which may not be zero-rated. It’s important to ensure that your service falls within the zero-rated category before making any changes. Advisory services are those which offer opinions and aid clients in creating strategies. Consulting services are those which offer information and specialist counsel. Professional services can be defined as any service which requires advanced or specialized training/education to provide. Retaining a lawyer, as the title of this article suggests, might check all of these boxes, depending on what the scope of the retainer is.
While all of the above are zero-rated, there are exceptions which include services associated with litigation, real property/tangible personal property, and acting as an agent. Let’s take a moment to talk about litigation in greater detail though, because litigation itself is exempt from zero-rated status… but there are exceptions to the exception! So, in internet-speak…Litigation refers to legal services involving representation in criminal, civil or administrative trials. If a non-resident engages a Canadian lawyer for the sole purpose of litigation, then it’s not zero-rated. If a non-resident engages a Canadian lawyer for reasons unrelated to litigation, or if the litigation commences after the lawyer has been engaged, then the service is zero-rated.
Summing it up with a healthy dose of legalese, The Government of Canada states that when a litigation “[…] service is not rendered to an individual, or rendered to an individual in connection with litigation but before commencement thereof, the supply of such a service may be zero-rated […] ” (Exports – Services and Intellectual Property, s.43). Businesses would do best to review their finances and policies to see if their services are zero-rated. Being exempt from these Canadian taxes may make or break a future deal and therefore should be considered before conducting foreign business.
Takeaways:
- From the perspective of a consulting service, carefully review your finances and policies, and verify the residency status of a client before charging for HST/GST
- From the perspective of a non-resident looking to hire Canadian consultants, review whether the service is zero-rated