This article is highly relevant if you sell on a consignment basis. Let’s have a detailed understanding of the applicable tax regulations on the consignment (Canada perspective).
Consignment is an arrangement for sales. In this arrangement, the owner of the goods delivers their goods to a third-party seller (consignee) intending to sell. It’s important to note that the consignee is supposed to find a buyer and sell the goods.
Registrant – It’s the person registered for collecting and submitting GST/HST. Depending on circumstance, both consignee/goods owner may be required to register and collect for the GST/HST in a consignment sale arrangement.
Factors to determine the registrant
Depending on the circumstance, both registrant and goods owner can be Responsible for collecting the GST/HST.
Generally, it’s the responsibility of the owner of the goods (registrant) to collect GST/HST when a sale is made on a commercial basis. On the other hand, the owner of the goods is not required to collect GST/HST when a sale is not made on a commercial basis or they are not a registrant. It’s one of the factors and the second factor is a type of consignment arrangement. Let’s discuss this in detail.
Sale by agent arrangement for consignment sale
In this type of arrangement, the role of the consignee is restricted to the agency, and the title of goods is transferred to the buyer directly from the original owner. In this scenario, the consignee can be termed as an agent of the owner in carrying out a transaction.
However, it’s important to note that the buyer of taxable goods must pay tax on the purchases. It does not matter if goods are sold by agency arrangement or by purchase and resale arrangement. Let’s understand who is required to charge GST/HST when there is an agency relationship in the consignment sale.
The goods owner should collect GST/HST – General rule.
If the consignment sale is carried through agency relations, it’s considered to be a direct sale from the owner of the goods to the end user. So, if the owner of the goods is required to charge GST/HST on the normal sale directly to the customer, he/she is also required to charge GST/HST on the sale made through as an agent.
Further, if the consignee is a registrant, he/she is also required to charge GST/HST from the good owner over the receipt of the commission amount.
So, GST/HST is mainly charged by the owner of the goods if the consignee is used as an agent in the execution of the sales transaction. It’s a general approach applicable to the collection of GST/HST.
The consignee is required to collect GST/HST – A special rule.
If the goods owner is non-registrant and the agent/consignee is registrant, the following tax implication will apply to the sale transaction.
The sale of taxable goods to the consignee is considered taxable supplies. Hence, the consignee must collect GST/HST from the buyer of the goods. However, collection is not made if supplies are zero-rated.
In such a situation, it’s considered that transaction is executed via an agent. Hence, the agent/consignee is not required to collect the GST/HST from the goods owner (except in some circumstances).
A purchase and resale agreement
In this arrangement, an original owner sells the goods to the consignee in the first transaction. After that, a second transaction takes place and goods are sold from the consignee to the final buyer. So, from the consignee’s perspective, it’s a purchase and sale transaction.
Let’s discuss GST/HST application in case of a purchase and resale agreement.
When both consignee and original goods owners are required to charge GST/HST
When original goods owner is a registrant and they are required to charge GST/HST in their normal operations, they are required to charge GST from consignee. Likewise, the registrant consignee is required to charge GST/HST from the purchaser of the final goods.
However, it’s important to note that GST/HST only becomes applicable when a sale is made to the final purchaser of the goods.
Consignment is a sale arrangement when a transaction for the sales of goods is executed through an agent. There can be two types of dealing between the consignee and goods owner.
The consignee may act as an agent. Alternatively, the owner of the goods might sell the first sale goods to the consignee, and the consignee sells the goods to the final buyer.
GST/HST application bar may be on the consignee/goods owner or both, depending on their relationship and registrant status.
However, the final purchaser must pay GST/HST on taxable supplies irrespective of the consignment arrangement.