Co-written by Emily Donahue, law student
Since July 1st 2021, foreign-based businesses with no physical presence in Canada selling digital products or services to Canadian consumers are required to register for, collect and remit the GST/HST on their taxable sales. Although Quebec already requires non-resident businesses to remit Quebec Sales Tax (QST) to Revenu Québec, the Government of Canada has implemented similar obligations for these businesses in regards to federal taxes.
In the context of an increased digital economy, the new federal changes to the Excise Tax Act target three areas of online commerce:
Sales of Cross-Border Digital Products and Services
Under the new measures, non-resident vendors supplying digital products or services to consumers in Canada (e.g. online subscription-based video and music streaming services, online legal and accounting services) need to henceforth collect and remit GST/HST. Distribution platform operators (e.g. mobile app stores and online marketplaces) supplying digital products and services made by non-resident vendors are also subject to these changes.
Generally, the non-resident businesses that exceed $30 000 CAD of applicable revenues over a 12-month period are required to register under the new and simplified GST/HST registration, reporting and remittance system.
Sales of Goods through Fulfillment Warehouses in Canada
Distribution platform operators are required to register, collect and remit GST/HST under the normal rules for the sale of goods located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada) when those sales are made by non-registered vendors through their platform. Distribution platform operators have the obligation inform the Canadian Revenue Agency (CRA) on the third-party vendors using their platforms.
Additionally, non-resident vendors are required to register, collect and remit under the normal GST/HST rules for sales of supplies that are stored in fulfillment warehouses in Canada, when they make sales on their own account.
Generally, these non-resident vendors and platform operators that meet or exceed the $30 000 CAD registration threshold over a 12-month period are required to register under the normal GST/HST rules.
Warehouses (fulfillment businesses) have to notify the CRA that they are such a business and must maintain records regarding their non-resident clients (vendors) and the goods they store in their facilities on their behalf.
Sales of Short-Term Accommodation through Digital Platforms
Under the new measures, all taxable supplies of short-term accommodations in Canada facilitated through accommodation platform operators are subject to GST/HST. Either the property owner or the accommodation platform operator is required to collect and remit the GST/HST on the short-term accommodation supplied in Canada that is facilitated by an accommodation platform. The applicable rate is dependent on the province in which the short-term accommodation is situated.
If the underlying third party suppliers of the accommodations are not registered, it is the accommodation platform operator’s obligation to register, collect and remit GST/HST if they meet or exceed the $30 000 CAD threshold over a 12-month period.
For non-resident vendors and distribution platform operators selling e-commerce supplies to consumers in Québec, the province’s government has announced that the new federal GST/HST rules pertaining to e-commerce will be harmonized into the existing QST system in order to avoid any discrepancies between the two regimes.
Although the changes took effect on July 1st, 2021, impacted businesses and platform operators that are able to show they have taken reasonable measures, but that are unable to comply with their new obligations for operational reasons, will be able to benefit from a transition period. In fact, the CRA will adopt a practical approach to compliance and will exercise their discretion in the administering of these measures for a period of 12 months.
Once the 12-month transition period is over, the targeted businesses and platform operators that do not comply with their new obligations will be subject to penalties pursuant to the existing tax legislation.
If you have any questions, we invite you to contact our Tax Law team.