International Inheritance and the HST
What do you do with an estate where the administration of the estate is all done and as an estate trustee or lawyer you are at the stage where you are ready to pay money to a foreign resident as a beneficiary of the deceased’s estate?
Do you charge HST to a non-resident beneficiary receiving money from an estate? The answer is – it depends.
The HST is a consumption value added tax (VAT) that is assessed incrementally based on the increase in value of a product or service at each stage of production or distribution. In theory, it is designed to pay for infrastructure and services provided by a state and funded by its taxpayers for services relied upon for that product or service. It is a tax that is used by many countries around the world. As of 2018, 166 of approximately 193 tax collecting countries employ a VAT, including all 35 of the more advanced Organization for Economic Cooperation and Development (OECD) members, except the United States which uses a sales tax system instead. The HST is used in provinces where both the federal goods and services tax (GST) and the regional provincial sales tax (PST) have been combined into a single value added sales tax (HST). In Ontario the HST is 13% of which 8% is the provincial portion.
The tax is structured in a way that mostly does not apply to non-residents. Many services provided in Canada are “zero-rated” for the HST when supplied to a non-resident. However, if a service is rendered to an individual, the individual generally has to be outside Canada while the service is being performed for there to be no HST. If legal services are provided to a non-resident or if the non-resident is receiving a bequest, then there is no HST charged,while the individual is resident in a foreign country.
There are situations where a person might be deemed to be resident although never having been in Canada. This would include when a person is subject to, or commences a court proceeding in Canada. Legal services and other advisory, consulting, or professional services provided to a non-resident are generally not charged except: a service rendered to an individual in connection with criminal, civil, or administrative litigation in Canada (however, a service rendered before the start of such litigation may be zero-rated and not charged); a service in respect of real property situated in Canada; a service in respect of goods situated in Canada at the time the service is performed, among others.
In regard to international inheritance and the HST it therefore depends if litigation was commenced in Canada in regard to that estate, or if there was some other event linking the beneficiary to Canada, other than the receipt of money. Where there is litigation then that portion of the service provided will be subject to the HST and should be charged to the non-resident. Otherwise, there is no HST charged to a non-resident beneficiary.
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