A non-resident corporation who is registered for GST/HST is required to provide and maintain a security deposit with the Canada Revenue Authority (CRA). However, if under a specified threshold of sales and net tax payable or refundable, a corporation may be exempt.
The minimum amount of security is $5,000 CAD, but can be as a high as $1 million CAD. The initial security deposit amount is based on 50% of the estimated net tax for the year. Net tax is calculated using the company’s Canadian net profit (Canadian sales less Canadian expenses) for the year, multiplied by 5% GST rate (or HST if selling in provinces with HST — see International FAQ #39). Then 50% of the net tax amount is your required security deposit.
For example, if your company estimates having a Canadian net profit of $200,000 CAD, your required security deposit would be $5,000 CAD ($200,000 x 5% x 50%).
You are responsible for estimating the net tax as CRA could question how you determined your required security deposit. Therefore, you will need to prepare a calculation and keep it for support in case CRA ever asks for it.
There is an administrative exception to the required deposit. If the sales in Canada are expected to be less than $100,000 CAD annually and net tax payable or refundable is expected to be less than $3,000 CAD, then no security deposit is required. The company will need to complete a Declaration of Security form and send it to CRA.
If you are required to make a security deposit, most companies send a cheque or money order to CRA. CRA does not accept the security deposit by wire transfer. Alternatively, bonds are accepted as security. CRA provides a list of insurance companies whose bonds may be accepted. The list can be found at www.tbs-sct.gc.ca under Contracting Policy (Appendix L).
If you do send a security deposit to CRA, CRA will keep the security until the GST/HST account is closed.
Have a tax question in Canada? Contact Grant Gilmour.