Tax & Trade Blog

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SPECIAL SALES TAX RULES FOR DIRECT SELLERS

Sales tax in Canada can be complex – especially in provinces that do not participate in the GST/HST harmonization system. This complexity becomes even more pronounced in industries that do not follow the typical retail model, like direct selling.  This blog explains how Canadian sales tax systems apply to the direct selling industry, and how special rules can help businesses streamline compliance.

Background

Under Canada’s standard sales tax rules, any person making taxable supplies over a certain threshold must register for GST/HST and provincial sales tax (where applicable), collect tax from customers, and remit it to tax authorities.  In a typical retail setup, the business itself tracks its revenue and ensures compliance.  But in a direct selling network, each participant may independently meet those thresholds.  Requiring every participant to track earnings, register, charge tax, and file returns would create a massive administrative burden and could discourage participation.

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COMPETITION BUREAU'S BROAD POWERS

FEDERAL COURT OF APPEAL DECISION IS A USEFUL REMINDER OF BASIC PRINCIPLES

On February 12, 2025 the Federal Court of Appeal (“FCA”) issued a decision upholding the Federal Court (“FC”) decision in Empire Company Limited and Sobeys Inc. v. the Attorney General of Canada (2025 FCA 34).  The case dealt with an application for judicial review of a decision of the Commissioner of Competition to commence an inquiry under the Competition Act (the “Act”, the same legislation which defines permissible multi-level marketing plans and illegal pyramid selling schemes in Canada). 

Accordingly, the case serves as a reminder of several principles regarding the Competition Bureau that are relevant to direct selling companies.

The new year brings possible new tax reporting requirements for direct sales platform operators (“Direct Sellers”)!

These changes stem from amendments to the Income Tax Act (“ITA”) and mandate that digital platform operators throughout the online “gig” economy report income and certain other information about some of the sellers using their websites or apps to the Canada Revenue Agency (the “CRA”).  See our prior article for more technical information.

Those affected include certain Direct Sellers operating on a “buy-resale” model.  Filings for the 2024 year are due by January 31, 2025!

Which Direct Sellers Are Affected?

The Ontario Court of Appeal (the “OCA”) has recently upheld (Sims Professional Corporation v. Cooke, 2024 ONCA 388) a non-competition clause, and in the process confirmed several important points about the Court’s approach to reviewing such clauses. 

This is good news for the direct selling industry and signals that properly drafted non-compete clauses with independent contractors can be upheld in Canada.  However, each company’s clauses should be considered in the context of the Court’s approach, as enforceability can depend on the details. 

On June 1, 2022, Quebec’s Bill 96 amended the Charter of the French Language (the “French Charter”) to include changes to the use of English trademarks on product packaging.  Effective June 1, 2025, a registered trademark is generally exempt from the French language requirements (meaning it does not have to be in French).

While this largely codifies existing jurisprudence, accompanying amendments to the Regulation respecting the language of commerce and business (the “Regulation Amendments”) will require additional French wording in some cases, also effective June 1, 2025.