You could be subject to special rules!
Municipalities acquire the vast majority of their goods and services in Quebec, with a strong emphasis on local purchasing. Occasionally, however, they may use or consume goods or services previously acquired outside the province. This could be the case, for example, with specialized equipment such as helmets for the fire department, or sweaters ordered to celebrate a particular event.
It should be noted that the importation of goods or services into Quebec by persons whose income is mainly non-taxable, such as municipalities and paramunicipal organizations, is subject to special QST rules, or even GST when the goods or services are acquired outside Canada.
The rules are numerous and complex, but here we’ll focus on some of the particularities for Quebec municipalities importing goods or services acquired elsewhere in Canada for consumption in Quebec.
Goods and Services Tax (GST) and Harmonized Sales Tax (HST)
The GST is a federal tax applied to most goods and services sold or provided in Canada. When these goods or services are acquired in participating provinces, the municipality may instead be subject to the Harmonized Sales Tax (Ontario at 13%, Prince Edward Island, Newfoundland and Labrador, Nova Scotia and New Brunswick at 15%).
So what happens when these goods or services are transferred to Quebec?
Quebec Sales Tax (QST) on supplies brought into Quebec
The Act respecting the Québec sales tax contains a number of rules designed to ensure that any person who acquires a good or service outside Québec, but for use or consumption in Québec by the person or at the person’s expense by another person (if applicable), is required to pay to the Agence du revenu du Québec (“ARQ”), QST calculated on a specific value; with certain exceptions.
For example, generally, when a municipality brings tangible personal property into Quebec that is not for exclusive use (i.e., 90% or more) in taxable activities, the municipality is required to self-assess QST not collected by the supplier, unless the QST so calculated is less than $35 for all the tangible personal property subject to self-assessment for the calendar month of importation.
Thus, when the municipality is registered for QST, the self-assessment must be reflected in its QST return for the period of the contribution to Quebec.
However, where the municipality is not registered, self-assessment must be made on specific forms, accompanied by payment of the applicable QST, no later than the end of the calendar month following the date on which the applicable tangible personal property is brought into Québec. Here are a few examples:
Example 1:
On January1, 2024, Ville Magnifique, a municipality registered for GST/HST and QST, acquires bags for resale in New Brunswick for $10,000 plus $1,500 HST. Since the resale of the bags is taxable, the importation of the bags into Quebec on January 2, 2024 does not trigger any requirement for self-assessment of QST by the municipality.
Example 2:
On March 6, 2024, the municipality of Au bon Citoyen, which is not registered for GST/HST and QST, purchases computers from a retailer in Ontario for $20,000 plus $2,600 HST. The municipality then brings the computers to Quebec on the same day to use them for municipal purposes (tax-exempt activities). Since the computers will not be used for taxable activities, the municipality will have to self-assess QST payable calculated as follows: $20,000 x 9,975% = $1,995. The tax must be remitted to Revenu Québec no later than April 30, 2024, along with the appropriate forms.
The municipality may claim a partial refund corresponding to 50% of the QST thus autocoated and remitted to Revenu Québec.
Beware of HST: Pitfalls to avoid!
Many municipalities make the mistake of claiming the full amount of HST paid on goods or services brought into the province from outside Quebec.
It’s important to note that when importing goods or services acquired in participating provinces, the municipality cannot recover 100% of the HST charged. Only the federal component of the HST can be recovered through its rebate application to public service bodies. For example, in the case of a purchase made in Ontario, the municipality will only be entitled to a refund of 5/13 of the HST paid.
As for the provincial portion of the HST (8% – can be obtained by multiplying the HST charged by 8/13 in the case of a purchase made in Ontario), a municipality resident in Quebec must submit a rebate application directly to the Canada Revenue Agency in order to obtain a refund of the provincial component of the HST.
It should be noted that refunds are only paid if specific criteria are met. For example, in the case of tangible personal property, it must, among other conditions, have been removed from the participating province within 30 days of delivery to the municipality. The rebate application must also be submitted within one year of the property’s removal from the participating province.
In conclusion
If your municipality has already acquired goods or services outside Quebec that it then used or consumed in the province, an analysis may be required to determine whether self-assessment of QST is required.
Furthermore, since the 100% partial rebate for a municipality applies only to the federal portion of the HST paid (5%), a Quebec municipality that has claimed a rebate corresponding to 100% of the HST paid outside Quebec is liable to have the provincial portion of said HST disallowed during a Revenu Québec tax audit. What’s more, given the one-year deadline for recovering this provincial component from the Canada Revenue Agency, situations where the said component has been claimed from the wrong level of government should be quickly regularized.
Our commodity tax team can help you comply with your tax obligations… Don’t hesitate to contact them.
An article from our Consumer Taxes department
