Transfer of GST/HST Refunds to Non-Resident Security Accounts
Question
How are non-resident security amounts determined and why are GST/HST refunds being transferred to these accounts? Has the administration of these accounts changed?
Response
Under subsection 240(6) of the ETA, non-residents who register for the GST/HST must provide and maintain adequate security with the CRA unless they have a permanent establishment in Canada. The term “permanent establishment” is qualified in this subsection to exclude a fixed place of business of another person who acts in Canada on behalf of a non‑resident. Therefore, a non-resident person may be exempted from providing security only if the non-resident makes supplies through its own fixed place of business in Canada.
The non-resident security helps to ensure that a non‑resident person pays or remits all amounts due under Part IX of the ETA. In cases, where a registrant has no assets in Canada that the CRA can seize if the registrant defaults on its tax remittance obligations, then the CRA has the security to which it can resort for payment.
The initial security required at time of GST/HST registration is set at 50% of the estimated net tax (positive or negative) of the non-resident for the 12‑month period following registration. Subsequently, the security required is equal to 50% of the net tax during the person’s previous 12-month period.
Non-residents with annual taxable supplies in Canada below $100,000 (including zero rated supplies) and whose annual net tax (remittable or refundable) is less than $3000 are not required to post security. The GST/HST security requirement for other non-residents is currently set at a minimum of $5,000 and a maximum of $1 million.
The CRA typically reviews the amount of security held for each non-resident annually. A registrant will generally only be asked to increase the amount of security where,
- if the total amount of security required is $25,000 or less and the additional amount is more than $2,500, or
- if the total amount of security required exceeds $25,000 and the additional amount is more than $5,000.
In cases where an increase is required in the amount of security held for a particular non resident, the CRA issues a notice to that person indicating the additional amount required and advises that any GST/HST amounts may be withheld. If this increased amount of security is not received by the CRA within a reasonable period of time, the processing system is instructed to automatically transfer any GST/HST amounts owing to that person to the security account until the additional security requirement has been met. This automatic set-off procedure began in April 2007 with the implementation of the GST/HST program into the Standardized Accounting system. During implementation, security account requirements were recalculated and automatic set-offs were started where the amounts held were insufficient. There were also some initial system issues concerning non-residents with permanent establishment in Canada, however, these issues have been identified and resolved.
Non-residents wanting to discuss their security account requirements should contact the tax services office indicated for them at the following link http://www.cra-arc.gc.ca/contact/gsthstnonres-e.html on the CRA website.