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GST Bond Requirements For Non-Residents of Canada

Question:

What are the bond requirements for GST registrants that are non-residents of Canada?

Facts:

As a non-resident person registered for GST, you must provide and maintain security with the Canada Revenue Agency (CRA). The CRA is concerned that you will collect GST from your customers but not remit the taxes to them. Requiring a security deposit is a way that the CRA can reduce the risk of this happening.

Discussion:

Generally, the minimum amount of security the CRA can require is $5,000 CAD but can be as high as $1 million CAD. The amount required is based on 50% of your estimated net tax remittable or refundable. In order to calculate the net tax, you will need your estimated Canadian net profit (Canadian sales less Canadian expenses) for the coming year. Once you have your net profit number, multiply it by 5% and then 50% to get your required security deposit amount. For example, if you estimate having a net profit of $200,000 CAD, your required security deposit would be $5,000 CAD ($200,000 CAD x 5% x 50%). Please note that non-residents are responsible for estimating the net tax as the CRA could question how you determined your required security deposit. Therefore, you will need to prepare a calculation and keep it for support in case the CRA ever asks for it.

There is an exception to the required deposit if the sales in Canada are expected to be less than $100,000 CAD annually and net tax is expected to be less than $3,000 CAD. The CRA allows you to complete a declaration form to waive the security deposit requirement.

Additionally, the amount of security required is reviewed annually. If at the end of your fiscal year-end, it is determined that the amount of security provided is not enough, the CRA can require you to send in additional funds.

The CRA accepts security in the form of cash, a certified cheque or money order, or a bond. A bond must be in a form accepted by the CRA:

  • Transferable non-certificate bond guaranteed by the Government of Canada.
  • A bond issued by a company that holds a certificate of registry to carry on the fidelity or surety class of insurance business in Canada, and that is approved by the President or the Treasury Board as a company whose bond may be accepted by the Government of Canada.
  • A bond issued by a member of the Canadian Payments Association as provided for in Section 4 of the Canadian Payments Association Act.

If you would like to discuss your security requirements as a non-resident of Canada GST registrant, please contact a member of the EPR tax team by completing the contact form below. Our tax experts can advise on the best structure to reduce or minimize the impact of the taxes.

Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. EPR Maple Ridge Langley, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.


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