Is dropshipping legal? What to watch out for in 2022 | hellotax 9. to have acquired physical possession of the goods for the purpose for which physical possession of the goods is being retained. The facts in this example are the same as in the previous example, except that: The manufacturer has made a taxable supply of the good to the non-resident and has caused physical possession of the good to be transferred to another person (i.e. However, the registered supplier does not have a potential obligation to self-assess tax as a recipient of an imported taxable supply of the goods because the supplier does not acquire physical possession of the goods. An unregistered non-resident enters into an agreement with a registrant to purchase a good for use in its activities outside Canada. The non-resident retailer agrees to sell the good to the non-resident individual for its fair market value of $100. The non-resident customer picks up the goods at the premises of registrant 2 for immediate exportation and provides registrant 2 with evidence that the goods were exported. The service provider gives a drop-shipment certificate to the registrant upon receiving physical possession of the goods from the registrant. The registrant is therefore potentially liable to collect tax on a deemed supply of the goods to the non-resident when the registrant causes physical possession of the goods to be transferred to the non-resident. Registrant to whom the drop-shipment certificate is issued (the registrant) However, the $2,500 in GST that the non-resident was required to pay to the registrant is unrecoverable by the non-resident supplier who may reflect it in the amount charged to the customer for the good. The customer is consequently entitled to an ITC for the tax. When the registrant transfers physical possession of the goods to the bailee, the bailee will store the goods until it is required to transfer physical possession of the goods to another person who is yet to be identified (i.e. Based on an input tax credit flow-through mechanism Footnote 19, the amount of tax that the unregistered non-resident pays to the manufacturer may be recovered by the registered supplier in the form of an ITC in certain circumstances. Deeming the registrant to have made a taxable supply of the goods results in the registrant becoming liable to collect tax from the unregistered non-resident in respect of that supply. Dropshipping costs: How much does a dropshipping cost? | hellotax The facts in this example are the same as in example 2. ___acquiring physical possession of the goods belonging to an unregistered non-resident named: ,for the purpose of either making a taxable supply of a commercial service to an unregistered non-resident named: in respect of the goods or making a taxable supply in Canada to an unregisterednonresident named: , of a service of manufacturing or producing goods (also referred to below as the goods). Since the non-resident does not normally supply goods in Canada, it hires a registrant to test the good at the premises of the customer. The non-resident ships the goods to the registrants premises in Canada. The manufacturer is a recipient of a supply of the goods made outside Canada by unregistered non-resident supplier 2. Generally, this only affects a bailee who is supplying a service of storing the goods since that supply is a commercial service that may be subject to the general drop-shipment rule. Delivery of the goods to the non-resident customer occurs at the registrants premises in Canada. Although the resident mailing house is supplying a commercial service to the non-resident mailing house which is an unregistered non-resident, the general drop-shipment rule does not apply to that supply because it is in respect of goods that belong to a non-resident who is registered (i.e. As a result, the registrant is not required to collect tax from the non-resident in respect of its supply to the non-resident. The non-resident imports the good, pays the tax on the importation of the good and delivers it to the customer. However, registrant 2 causes physical possession of the goods to be transferred to the non-resident in Canada for export. The bailee that has acquired physical possession of the goods is potentially liable to collect tax on a deemed supply of the goods to the non-resident based on the general drop-shipment rule. The drop-shipment rules also apply where a registrant sells goods to an unregistered non-resident, but physical possession of the goods is retained after that time by the registrant or another registrantFootnote 28. The facts in this example are the same as in the previous example except that: The registered service provider causes physical possession of the goods to be transferred to a person outside Canada (i.e. However, it is important to note that with respect to supplies made to unregistered non-residents, the exception provides broader relief than that provided under the general zero-rating rules for exported goods. Tax Issues in Drop Shipment | SaleHoo The registrant transfers physical possession of the goods to the bailee solely for the purpose of storing the goods. This memorandum replaces the version dated February 2001. The deemed transfer of physical possession of the goods by the registrant to the identified person will result in the general drop-shipment rule applying with respect to the supply made by the registrant unless the previously discussed exceptions to the general rule apply. The manufacturer hires a carrier to pick up the goods at the manufacturers premises and to deliver them to the registrants premises. Provided the registrant maintains satisfactory evidence of the exportation of the goods by the non-resident, the general drop-shipment rule will not apply and its supply to the non-resident is deemed to be made outside Canada. However, because registrant 2 issues a drop-shipment certificate to registrant 1 with respect to the goods, the general drop-shipment rule does not apply to the supply made by registrant 1 and that supply is deemed to be made outside CanadaFootnote 81. A drop-shipment certificate that is issued to a registrant in this case will not result in the application of the exception to the general rule to the supply made by the registrant. Satisfactory evidence includes a copy of Form B3, Canada Customs Coding Form showing that the tax was paid on the importation of the goods, or any supporting documentation issued by the supplier to the non-resident showing the tax paid in respect of the supply. The registrant subsequently agrees to sell the goods to an unregistered non-resident supplier. As a result, the registrant is not required to collect tax from the non-resident supplier in respect of its supply to the non-resident supplier. The conditions for issuing a drop-shipment certificate and their effect are explained in the following section beginning at paragraph 19. The registered purchaser is the recipient of a taxable supply of goods made in Canada by a registered supplier and is required to pay tax Footnote 18 to the supplier in respect of that supply. A non-resident individual wishes to send a good as a gift to a resident consumer. The manufacturer has agreed to supply a manufacturing service to the non-resident and is therefore potentially liable under the general drop-shipment rule to collect tax on the fair market value of a deemed supply of the goods to the non-resident when physical possession of the manufactured goods transfers to the non-resident customers at its premises. However, the issuance of the drop-shipment certificate by the registrant results in the general drop-shipment rule not applying to the supply of the good made by the manufacturer and that supply being deemed to be made outside Canada. The registrant retains physical possession of the raw materials after ownership transfers to the non-resident supplier for the purpose of subsequently transferring physical possession of the goods to the manufacturer. The bailee is required to collect tax on the consideration for the taxable supply of the storage service made to the non-resident supplier since it is a taxable supply made in Canada. Dropshipping and Sales Tax: who collects, who pays? - Quaderno As a result, the registrant is not required to collect tax from the non-resident in respect of this supply. Registrant 1 has acquired physical possession of the goods to perform a commercial service in respect of the goods and is therefore potentially liable to collect tax on the fair market value of the goods. The tax imposed on an imported taxable supply becomes payable on any amount of consideration for the supply at the time it is paid or becomes due, whichever is earlier. a warehouse receipt, the time the registrant directs the bailee in writing to transfer physical possession of the goods to the consignee, and. The unregistered non-resident is not required to collect tax in respect of their supply of the good since it is made outside CanadaFootnote 22. 4. other circumstances have resulted in unexpected delays. The registrant is considered in this case to have acquired physical possession of the good of the unregistered non-resident in order to supply a taxable commercial service to the unregistered non-resident and causes physical possession of the good to be transferred to another person (i.e. The non-resident customer picks up the goods at the registrants premises and exports them as soon as is possible. if the bailee is not a carrier to whom physical possession of the goods has been transferred for the sole purpose of shipping the goods, the time the bailee gives the registrant a drop-shipment certificate. The manufacturer is therefore potentially liable to collect tax on the fair market value of a deemed supply of the finished goods to the non-resident based on the general drop-shipment rule. The issuance of the drop-shipment certificate by the bailee results in the general drop-shipment rule not applying to the supply of the goods made by the registrant and that supply being deemed to be made outside Canada. The application of the exception results in a sale of exported goods made to an unregistered non-resident being relieved of tax in circumstances similar to those in which a sale of goods could be zero-rated as a result of being exportedFootnote 25. Detailed information on the rebate is available in GST/HST guide RC4033, General Application for GST/HST Rebates or from any CRA tax services office. The registered recipient of the supply of the installed good is deemed to have received from the unregistered non-resident supplier of the good a separate supply of the installation service that is not incidental to the supply of the good. A registrant hires a registered service provider to supply a commercial service in respect of its goods. the physical possession of which the non-resident causes to be transferred in Canada to the registrant for the registrant to make a taxable supply of a commercial service in respect of the goods to the non-resident. I, (your name) , hereby certify and acknowledge that the information given on this form is, to the best of my knowledge, true, correct, and complete in every respect, and that I am the consignee or I am authorized to sign on behalf of the consignee. The general drop-shipment rule is therefore deemed not to apply to that supply of the commercial service and it is deemed to have been supplied outside Canada. However, the issuance of the drop-shipment certificate by the customer results in the general drop-shipment rule not applying to the supply made by the registrant and that supply being deemed to be made outside Canada. The manufacturer issues a drop-shipment certificate to the registered supplier in respect of the goods. GST/HST Memorandum 1.4, Excise and GST/HST Rulings and Interpretations Service, Exceptions to the general drop-shipment rule, Drop shipment to registered consignee of unregistered non-resident and requirement to self-assess, Transfer of goods to a bailee by a registrant, Transfer of goods to a bailee by an unregistered non-resident, Non-resident rebate respecting installation services, Draft GST/HST Technical Information Bulletin B-103, Harmonized Sales Tax Place of supply rules for determining whether a supply is made in a province, Meaning of Permanent Establishment in Subsection 123(1) of the Excise Tax Act, General Application for Rebate of GST/HST, Sale of goods drop-shipped to a registrant involved in non-commercial activities, Sale of goods drop-shipped to a registrant (four parties), Supply of a commercial service on a good drop-shipped to a registrant (four parties), Supply of an installed good and installation service (four parties), Transfer of goods to a non-resident recipient outside Canada, Transfer of goods to a person other than a non-resident recipient outside Canada, Transfer of goods to a carrier for export (four parties), Transfer of a good to a non-resident recipient for export, Transfer of goods to a person other than a non-resident recipient for export (five parties), Good retained by a registrant to supply commercial services, and then exported, Good retained by a registrant to transfer to a subsequent purchaser who issues drop-shipment certificate, Goods retained by a registrant until purchaser found, and then exported, Goods retained by a registrant to supply a commercial service to a subsequent purchaser, and exported, Goods retained by a registrant for subsequent transfer to a manufacturer, and exported (four parties), Goods retained by another registrant to transfer to a subsequent purchaser, and exported (four parties), Transfer of goods to a carrier for subsequent transfer to registrant and export, Transfer of goods to a carrier for subsequent transfer to a named person, Transfer of goods to a bailee for subsequent transfer to a named person and export, Transfer of goods to a bailee for subsequent transfer to a named person and export (four parties), Transfer of goods to a bailee that issues drop-shipment certificate for subsequent transfer to a named person and export, Transfer of a good to a bailee for subsequent transfer to a named person (four parties), Transfer of a good to a bailee that issues drop-shipment certificate for subsequent transfer to a named person, Transfer of goods to a bailee for subsequent transfer to an unidentified person and export (four parties), Transfer of goods to a bailee that issues a drop-shipment certificate for subsequent transfer to an unidentified person and export, Transfer of imported goods to a bailee by a non-resident and exported after commercial service is performed (four parties), Transfer of good to a bailee for subsequent transfer to a named person, Transfer of goods to a bailee for importation by bailee and exported after commercial service is performed, Commercial service in respect of goods temporarily imported by a non-resident, Commercial service in respect of goods temporarily imported by a registrant, Commercial service in respect of temporarily imported goods, Supply of installed goods and installation service (four parties). The supply of the goods by the manufacturer may not be relieved of tax in this case by the issuance of a drop-shipment certificate. An unregistered non-resident supplier agrees to sell an unconditionally zero-rated good. This relief mechanism is explained beginning at paragraph 70. A) Indicate the scope of the certificate (check one only): ___A drop shipment of good(s) described above made on: Y - M - D, ___ Multiple drop shipments of goods described above made on:Y - M - D, ___Ongoing drop shipments of goods described above made beginning:Y - M - D, ___Drop shipments of goods described above made during specified period: FromY - M - D toY - M - D. B) The registered consignee has or will receive physical possession of the goods described above in Canada from the registrant who has either (check one only): ___made a taxable supply in Canada of the goods by way of sale, to an unregistered non-resident named: ___made a taxable supply in Canada of a service of manufacturing or producing the goods, to an unregistered non-resident named: , or. Deeming physical possession of the goods not to have transferred to the bailee results in the bailee not being subject to the general drop-shipment rule as a result of acquiring physical possession of the goods. Who collects sales tax, you or the supplier? The non-resident subsequently sells the goods to a named non-resident customer. An unregistered non-resident manufacturer agrees to supply a good on an installed basis to a registered customer at its fair market value of $100,000. The consequences of the application of the general rule are as follows: 18. Dropshipping Tax: The Complete Guide and the goods are exported as described in the following paragraph. Unless otherwise indicated, all references in this publication to taxable supplies are to taxable (other than zero-rated) supplies and all references to importations are to taxable importations. The non-resident supplier is the importer of record of the goods and pays the tax on the importation of the goods. 77. The CRA will accept written certification as evidence that the customer is both a non-resident and is not registered. Generally, these provisions apply where the registrant obtains a drop-shipment certificate from a registered person to whom the goods are physically transferred or where the goods are exported. The good is to be installed in real property at the customers premises in a non-participating province. When Dropshipping, there are two types of tax you need to pay: Income tax Sales tax As a business owner, you're required to pay both taxes. the non-resident) resulting in the exception applying to the supply of the commercial service made by the service provider. This example is similar to example 22 of GST/HST Policy Statement P-125, . The good belonging to the non-resident must be inspected once it arrives at the premises of the customer. The customer is deemed to have received from the non-resident a separate taxable supply of the installation service for consideration equal to that part of the total consideration paid by the customer for the good and its installation that can reasonably be attributed to the installation. The manufacturer is deemed to have acquired physical possession of the goods at the time ownership transfers to the non-resident for the purpose for which physical possession of the goods is being retained. If you wish to make a technical enquiry on the GST/HST by telephone, please call 18009598287. Once the goods are sold by the registered supplier, the manufacturer will supply a commercial service to the non-resident in respect of the goods.