Vendor Permits and the Retail Sales Tax

To Whom Does This Apply?

Individuals and companies who sell goods or services that are taxable under the Ontario Retail Sales Tax require a Vendor Permit.  Retail Sales Tax is also referred to as "provincial sales tax".

Summary

A "Vendor Permit" is required to charge, collect and remit Retail Sales Tax (RST) on your taxable sales.

1. Who requires a Vendor Permit?
You must obtain an RST Vendor Permit if:

• you regularly sell taxable goods; 
• you regularly provide taxable services;
• you charge more than $4 admission to a place of amusement; 
• you are a manufacturing contractor, that is, the manufactured cost of goods you use in real property contracts is more than $50,000 in any fiscal year; 
• you are a non-resident contractor doing business in Ontario; 
• you sell taxable goods or services at flea markets, fairs or exhibitions; 
• you regularly import taxable goods or taxable services into Ontario for your own use; 
• you purchase goods exempt from RST that you plan to resell, but later take these goods from inventory for your own use.

You must register for a Vendor Permit even if your sales are small - there is no minimum.

You must keep a copy of your Vendor Permit at each business location and let anyone see it on request.

2. Who does not require a Vendor Permit?
You do not need a Vendor Permit if:

• you sell only tax-exempt goods, such as fresh fruit and vegetables at a roadside stand;
• you provide only non-taxable services, such as dry cleaning; 
• you are a wholesaler or manufacturer and do not make retail sales.

3. How do I get a Vendor Permit?
There is no fee to apply for a Vendor Permit.  You can register for a Vendor Permit:

• by telephone; 
• by mail or fax; 
• in person at an Ontario Ministry of Finance Tax Office; 
• at an Ontario Business Connects  workstation
• through online services at www.trd.fin.gov.on.ca

4. What about updating and renewing a Vendor Permit?
Vendor Permits do not have to be renewed.  However, a Vendor Permit becomes invalid if there is a change in legal name or business ownership.
You must report any changes to your:

• business name; 
• telephone number; 
• location;
• mailing address.

To make changes to your business or trade name or your mailing or business address, you may:

• visit www.trd.fin.gov.on.ca and select "Online Services "
• call your local Ontario Ministry of Finance Tax Office
• complete the Notification of Change form on the back of your RST return and mail it to your Ontario Ministry of Finance Tax Office.

You must also report any legal changes to your business name that happen because you:

• incorporate your business;
• amalgamate your business with another business;
• change your business from a sole proprietorship to a partnership;
• change business partners.

Note: If you sell or close your business, you must return your Vendor Permit to an Ontario Ministry of Finance Tax Office within 15 days.  You must also file your last RST return and pay any RST owing, such as on unsold inventory.

5. What if I purchase an existing business?
When you purchase a business from someone else, you must get your own Vendor Permit.  A Vendor Permit cannot be transferred.

You should obtain a "Clearance Certificate" from the person or entity selling the business.  A Clearance Certificate lets you know that the business you are buying does not have any outstanding RST liabilities.

When you contact the Ministry of Finance, they will ask if any taxable business equipment (chattels) will be included with the business purchase.  If this equipment is not for resale, you must pay RST on this equipment.  This is commonly known as RST "chattel tax".

For further information:
visit the Web site:
Clearance Certificate Checklist
http://www.trd.fin.gov.on.ca/userfiles/HTML/cma_3_29235_1.html

Examples of taxable business equipment (chattels) include:

• office equipment and furniture, such as desks, filing cabinets, computers;
• office supplies;
• cash registers;
• tables and chairs;
• cutlery and dishes.

6. What is taxable?
RST applies to all purchases/sales of tangible personal property, unless there is a specific exemption.  Tangible personal property is anything that can be seen, weighed, measured, felt or touched; that is, anything that we can perceive with our senses.  It also includes computer programs, natural gas and manufactured gas.

i. Tax-exempt Goods
Examples of the most common goods that are not taxable to anyone include:

• food products (except for candies, confections, snack foods and soft drinks);
• prepared foods sold by an eating establishment for $4 or less;
• children's clothing (including diapers);
• footwear costing $30 or less;
• feminine hygiene products;
• books, newspapers, bulletins;
• drugs and medicine sold under a doctor's prescription;
• goods designed solely for people with physical disabilities.

ii. Some Common Exemptions
Some goods may be purchased without paying RST depending upon who the purchaser is or what the intended end-use of the goods will be.  Examples include:

• goods purchased for resale;
• production machinery and equipment purchased for the use of a qualifying manufacturer;
• hospital equipment purchased by a qualifying hospital;
• goods incorporated into goods for resale.

Note: For more information about exemptions from the RST, please consult the document  Purchase Exemption Certificates for Retail Sales Tax.

iii. Taxable Services
Only seven services are taxable in Ontario.  They are:

• telecommunication services (telephone, cable, pay television);
• accommodation for less than one month (hotels, motels, bed and breakfasts with more than 3 rooms, etc.);
• labour provided to install, assemble, dismantle, adjust, repair or maintain tangible personal property;
• labour provided to install, configure, modify, or upgrade a computer program;
• maintenance, warranty or service contracts of tangible personal property;
• any contract for the service, maintenance or warranty of a computer program,
• commercial parking.

iv. Non-taxable Services
Examples of non-taxable services include:

• dry cleaning;
• carpet and upholstery cleaning;
• personal services, such as hair styling, barbering and beauty treatments;
• medical and health services;
• veterinary care;
• car washing and engine shampooing;
• labour to install or repair real property or fixtures.

If you provide a non-taxable service, you do not charge your customers RST.  However, you must pay RST on the taxable goods and services you use to provide the non-taxable service.

v. Other Taxable Sales
In addition to tangible personal property, certain premiums of insurance are taxable, such as property insurance.  Admission charges of more than $4 to places of amusement, such as cover charges to nightclubs or bars and restaurants with dance floors, are also taxable.

7. What is the RST rate and how is it calculated?
The general RST rate in Ontario is 8%.  The other RST rates for certain goods and services are:

• accommodation for less than one month: 5% ;
• admission of more than $4 to a place of amusement: 10% ;
• alcoholic beverages sold through licensed establishments: 10% ;
• alcoholic beverages sold through retail stores: 12% ;
• alcoholic beverages taken from your inventory for your own use or provided free of charge: 12% .

Note: As of April 1, 2004, RST paid on automobile insurance premiums and on parts and labour for warranty repairs, including repairs made under extended warranty contracts, service or maintenance contracts, or guarantees will be phased out.  Purchases of warranty contracts, extended warranty contracts, service or maintenance contracts or guarantees, and deductibles paid as part of a warranty repair remain taxable at the rate of 8%.

ii. There are also two flat RST rates:

• 13 cents per litre of beer or wine produced at a brew-your-own store;
• a tax for fuel conservation on new passenger vehicles and sport utility vehicles (please contact the Ministry of Finance for details).

iii. RST is due at the time of sale of all taxable goods, services, and admissions, except for insurance. RST on insurance is due when the insurance premium is paid.

A "sale" includes:

• a transfer of title or ownership;
• an exchange or barter;
• a lease or rental; 
• a sale on credit; 
• a sale when the purchase price is being paid in instalments; 
• a transfer of possession under a conditional sales contract;
• a promotional distribution.

You must calculate RST to the nearest cent.  For example, if the calculation results in an amount that is half of a cent or more, the RST must be rounded up to the next cent. 

You must calculate RST separately on every transaction.  If you sell several taxable goods together, this is considered one transaction.  You calculate RST on the total amount charged to your customer.

However, you cannot combine charges made for taxable services.  You must calculate RST separately on the amount charged for each service, even if the charges are all shown on one statement or billing.

When you make a taxable sale, you must charge and collect the RST due and remit it with your next RST return, whether or not your customer has paid you in full.

If you also charge the Goods and Services Tax (please see the document  Goods and Services Tax and Harmonized Sales Tax - GST/HST) on a sale, you must calculate the RST on the total selling price before the Goods and Services Tax.

iv. If you make a sale to a customer and deliver or arrange for delivery of the goods to a place outside Ontario, you do not charge your customer RST.  In this case, you must keep all shipping documents and bills of lading to support the tax-exempt sale.  If a customer takes delivery of the goods in Ontario, then you must charge RST.

v. Status Indians, Indian bands or band councils may purchase most goods or services without paying RST, as long as the goods are for use on reserves.  To claim this exemption, an individual Status Indian must show you their federal "Certificate of Indian Status" identification card.

For sales to Status Indians, you must note in your records:

• the card number;
• the customer's name;
• the band name or number;
• a brief description of the goods sold.

Note: Sales to corporations owned by Status Indians are taxable.  Meals over $4 and alcoholic beverages at any price bought by Status Indians off the reserve are taxable.

vi. Sales to foreign states, representatives and officials
A foreign representative or official, and a spouse or same-sex partner of a foreign representative or official, may purchase taxable goods and/or services without paying RST if they have been issued an identity card by the Department of Foreign Affairs and International Trade (Canada) and the back of the card indicates the cardholder is entitled to an exemption from RST in Ontario.

You must check the expiry date on the front of the card to make sure it is still valid, and make a note in your records of:

• the card number
• the customer's name and official title
• a brief description of the goods and/or services sold.

Entities of foreign states can also purchase taxable goods and/or services exempt from RST by providing the vendor with a valid PEC.

vii. "G" permits
"G" permits are special Vendor Permits issued to some large businesses and to the federal government that allow them to purchase goods and services without paying RST.

If you sell goods or services to a "G" permit holder, you must record the "G" permit number on the purchase order.

Note:  Some customers may quote their "G" permit to contractors and claim they are not required to pay RST included in real property contracts.  If you are a contractor, you must still pay RST on the materials you use to fulfill the contract regardless of your customer's "G" permit.

8. On what goods and services do I pay RST?
You must pay RST on any equipment or supplies that are purchased for use in your business.  In this case you are the consumer and as a result responsible for paying the RST.

Examples of goods and services would be:

• office equipment, for example desks, chairs, and cash registers;
• office supplies, such as receipt books, stationary, and cash register tapes;
• other business equipment and supplies, such as cleaning supplies or shop equipment;
• taxable services for your business use, such as telecommunication services.

9. What records should I keep?
You are required to keep records that prove the amount of RST that was collected, remitted, charged, and payable.  You must keep all books and records related to your business for at least seven years, you are not allowed to destroy any of your records before seven years have passed unless you have obtained written permission from the Minister.

You must also meet certain conditions before you can destroy any books or records.

If you do not keep accurate and complete records an auditor can estimate the RST owing, also you might be assessed interest and penalties.

Examples of the records you should keep are:

• financial statements;
• contracts;
• sales and purchase invoices;
• annual inventory records;
• bank statements; 
• cancelled cheques.
• guest checks or chits
• bank statements
• cancelled cheques
• Purchase Exemption Certificates provided by your customers
• out-of-province shipping or mailing receipts.

Your records must be available for audit in Ontario.

For further information:
visit the Web site:
Retention/Destruction of Books and Records
http://www.trd.fin.gov.on.ca/userfiles/HTML/cma_3_20001_1.html

10. How is RST Reported and Remitted?
Once you have a Vendor Permit, you will receive RST "return" forms.  You must complete and file all returns, even if you have no sales (either taxable or exempt) or RST to report during the return period.  You can file your returns and make your payments:

• by mail to the Ontario Ministry of Finance;
• in person at an Ontario Ministry of Finance Tax Office; or
• at your bank (Note: returns cannot be filed at a Caisse Populaire or a Credit Union).

Financial institutions will not accept returns without a payment.  If you have a "nil return", you must send it directly to the Ontario Ministry of Finance.

• Important Notices

DISCLAIMER
Information contained in this section is of a general nature only and is not intended to constitute advice for any specific fact situation. For particular questions, the users are invited to contact their lawyer. For additional information, see contact(s) listed below.

Ontario Contact(s):
Hamilton Tax Office
Ministry of Finance - MOF
15th Floor
119 King Street West
Hamilton, Ontario  L8P 4Y7
Telephone: (905) 521-7504
Fax: (905) 521-7868
Toll-free (information): 1-800-263-9229