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I have an unusual case I was hoping someone could shed some light on.

I have an Ontario based Corporation which sells a piece of software and some computer based services. The buyers are from various places. Quebec, Ontario, Alberta, California, Arizona, New York State, etc... (about 70%, 10% Ontario, 20% other provinces in sales)

From a direct billing and tax scenario it's fairly straight forward in the sense you don't collect HST/GST/PST from US customers for these services (being provided virtually and remotely) and you collect the provincially based taxes on a case by case scenario based on the customers location.

I have a "partner" that provides engineering services for all of these sales. He receives roughly 50% of the Income after expenses. He does this as his own Ontario based Corporation.

So far he has been invoicing me for his amounts for each job. Since the job is almost always OUTSIDE Ontario we collect little GST (70% US income). But as an Ontario Corporation providing my company a service, he is supposed to charge me HST 13%. Normally this would balance out if I am also charging HST to the End customer. But because the end customers are out of country in most cases this causes a large HST build up that I may have to absorb.

Question

Is there any way to split the income between the partnering corporations, legitimately, so that the HST charged matches what is charged to the end customer? Possibly a special way to write up the invoice to show the charge is for services provided to a customer in a different geographic location.

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@littleadv Inappropriate comment. –  Chris W. Rea Mar 28 at 2:45
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The OP did say he was looking for a "Legitimate" answer. –  JohnFx Mar 28 at 3:02
    
@JohnFx while Chris's response does address the underlying issue, the question is in essence "How to legitimately break the law". It doesn't matter if you ask how to "legitimately" cook the books - you're still asking about cooking the books. –  littleadv Mar 28 at 3:21
    
I have tried looking for this info from local professionals already, it appears to be a somewhat specialized area involving so many aspects none have been able to give a definite answer. The "Virtualness" completely throws them for a loop; on top of complications of multiple territories, different currencies, free trade and the "who is doing work for whom". Thanks for feedback. –  DarrenMB Mar 28 at 3:23
    
@DarrenMB these are all red herrings. You should simplify your issue to this: "You're paying HST to your vendor, but your customers don't pay you - what to do?". That is the question that Chris answered, but what you asked, instead, was "I'm paying HST to my vendor, how to cook the invoices so that I won't?" - see the difference? –  littleadv Mar 28 at 3:29

1 Answer 1

up vote 3 down vote accepted

You need not "absorb" the GST/HST you pay but aren't recovering from your non-Canadian end clients.

You should be able to claim input tax credits for GST/HST your corporation pays to a supplier. Your input tax credits can exceed the GST/HST collected by your company, resulting in a net refund paid by CRA to your corporation. This would typically be the case for a Canadian company paying Canadian suppliers but having revenue come wholly or mostly from outside Canada.

You would benefit from talking to a corporate tax professional about this.

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Great answer to the question the OP didn't ask. I do hope that the OP learns from this that breaking the law is not necessarily the first thing to think of... –  littleadv Mar 28 at 3:22
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@littleadv I HAVE NO INTENTION OF BREAKING THE LAW. You guys should read the entire question before assuming I'm trying to break the law. Looking for clarification on how to deal with these case by case scenario's. –  DarrenMB Mar 28 at 3:26
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@Chris. Excellent point. So far I am still paying GST to the government (positive balance) so it had not affected me yet. I completely forgot about the fact it works in both directions and that I can continue to deal with the situation as I already am. Thanks. –  DarrenMB Mar 28 at 3:28
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@littleadv Quite often the real question is just under the surface of the one asked. This question was exploring a solution for a misunderstood problem. I addressed the problem. You might try that in lieu of a presumption of wrongdoing (even if inadvertent) and voting to close a real problem. –  Chris W. Rea Mar 28 at 3:36
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On other SO sites I would reword my question slightly but I think it is more useful in this format as others may make the same simple mistake I did. Thanks again @Chris another good point on the fact that a "Help Forum" is a mix of people who are very familiar and not so familiar with the topics of the site. –  DarrenMB Mar 28 at 3:41

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