Place of Supply Rules for Interprovincial Sales

Introduction
Understanding the place of supply rules for interprovincial sales is essential for businesses operating across Canada, especially e-commerce sellers, consultants, wholesalers, digital service providers, contractors and corporations with clients in multiple provinces. Sales tax rates vary widely across provinces, and applying the wrong rate can result in significant CRA or Revenu Québec reassessments. The place of supply rules determine which province’s tax rate applies, not where your business is located. Misapplying these rules is one of the most common sales tax errors in Canada. This guide provides a complete explanation of place of supply rules for interprovincial sales so businesses can invoice correctly, stay compliant and avoid costly penalties.

Legal and Regulatory Framework
Place of supply rules for interprovincial sales are governed by the Excise Tax Act (GST/HST) and Québec’s Taxation Act (QST). These rules determine whether GST, HST or QST applies based on the province where the supply is considered to occur.

Canada uses two different sets of rules:

1. Place of Supply Rules for Services and Intangible Products
   – Tax is based on the customer’s province, not the seller’s.
   – Applies to consultants, professionals, online sellers, SaaS, digital products, subscription services.

2. Place of Supply Rules for Goods
   – Tax is based on where the goods are delivered.
   – Applies to retail, e-commerce, wholesalers, manufacturers, Amazon sellers.

Understanding these rules is essential for applying correct sales tax rates across Canada.

Place of Supply Rules for Services
For services, the place of supply is based primarily on the customer’s billing address or the address most closely connected to the service.

Examples:

• A consultant in Montréal providing services to a client in Ontario → Charge HST 13%
• A marketing agency in Toronto serving a client in Alberta → Charge GST 5%
• A business coach selling sessions to a Québec client → Charge GST 5% + QST 9.975%
• A remote worker providing services to a B.C. business → Charge GST 5%

Location of the service provider does not matter—only the client’s province.

Place of Supply Rules for Goods
The place of supply for goods depends on where the product is delivered:

• Goods shipped to New Brunswick → HST 15%
• Goods shipped to Saskatchewan → GST 5% + PST (collected by customer’s province)
• Goods delivered in Québec → GST + QST
• Goods shipped to Alberta → GST 5%

If customers pick up goods at your location, the tax is based on your location.

Place of Supply Rules for Digital Products
For digital goods and services—including software, memberships, online courses, streaming—tax is based on:

• customer’s billing address
• customer’s IP location
• customer’s payment source

Digital invoices must follow provincial tax rates.

Understanding these rules is essential for applying sales tax on online and digital products.

Key Court Decisions
Courts have issued major rulings regarding place of supply rules for interprovincial sales. Key principles include:

• tax is based on the province where the customer receives the benefit, not where the business operates
• CRA can reassess past years if businesses apply the wrong tax rate
• unclear invoices or lack of delivery documentation may result in denied ITCs and penalties
• digital and intangible supplies must follow customer-location rules
• SaaS and digital services must respect updated CRA digital tax rules
• Québec courts enforce strict QST place-of-supply interpretation for both goods and services

These cases demonstrate the importance of accurate place of supply compliance.

Why CRA and Revenu Québec Target This Issue
Place of supply errors are one of the most frequent audit triggers. Tax authorities focus on this area because:

• businesses often charge GST instead of the correct HST rate
• many companies do not understand QST requirements
• digital sellers misapply tax rules for virtual products
• out-of-province businesses fail to register in Québec
• incorrect tax rates create lost government revenue
• inconsistent GST/QST returns raise red flags

Audit triggers include:

• mismatches between revenue and GST/HST collected
• large refunds due to misapplied tax rates
• sales into Québec without QST registration
• inconsistent sales tax codes in accounting systems
• businesses charging tax by mistake in tax-exempt provinces
• missing documentation for delivery addresses

Understanding place of supply rules for interprovincial sales dramatically reduces audit risk.

Mackisen Strategy
Mackisen CPA provides a comprehensive compliance strategy for place of supply rules for interprovincial sales:

• determining the required tax for every province
• applying correct place-of-supply rules for services, goods and digital products
• reviewing invoices for GST/HST/QST compliance
• setting up accurate tax codes in QuickBooks, Shopify, Stripe and POS systems
• registering for out-of-province sales tax when required
• correcting past returns using voluntary disclosures
• filing GST/HST returns and QST returns accurately
• assisting with CRA and Revenu Québec sales tax audits
• reconciling sales tax across multiple provinces

Our method ensures businesses bill correctly, collect accurately and remain fully compliant.

Real Client Experience
Many clients come to Mackisen after issues with place of supply rules for interprovincial sales:

• A Toronto consultant charged GST to clients in HST provinces, under-collecting tax. CRA reassessed multiple years. Mackisen corrected filings and reduced penalties.
• A Québec digital seller charged QST only to Ontario customers. We corrected place-of-supply settings in Shopify.
• An Alberta e-commerce business failed to charge QST for products shipped into Québec. Revenu Québec demanded retroactive tax.
• A Montreal SaaS company applied GST incorrectly instead of HST for Atlantic customers. We recalculated all invoices and refiled returns.
• A wholesaler used the warehouse address instead of the delivery address when determining tax. CRA reassessed ITCs.

These cases highlight the importance of accurate place of supply rules for interprovincial sales.

Common Questions
Business owners frequently ask:

• Do I charge sales tax based on my province?
No—tax is based on the customer’s province for services and digital products.

• Does Québec require separate QST registration?
Yes—QST is independent of GST/HST.

• What if a customer has multiple locations?
Tax applies to the location where the service is used.

• Do I charge tax to customers outside Canada?
Exports of services and digital products are often zero-rated.

• Do I need to collect PST for other provinces?
Possibly—each PST province has different rules.

• What if I sell both goods and services?
You must apply place-of-supply rules separately to each supply.

Understanding these answers helps businesses navigate place of supply rules for interprovincial sales correctly.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they're entitled to. Whether you're filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When advising on place of supply rules for interprovincial sales, Mackisen provides full sales tax setup, invoicing guidance, compliance verification and audit defense across all Canadian provinces.