Tax & Trade Blog
GST Update: Major Changes Incoming for Non-Resident Businesses
On Monday, November 30, 2020, the Government of Canada delivered its Fall Economic Update, entitled Supporting Canadians and Fighting COVID-19. As reported in the National Post, the Update will be particularly noteworthy for online businesses selling goods/services to Canadians, as it announced that the government would soon “force foreign digital vendors like Netflix and Amazon to collect sales taxes on a bevy of products and services sold to Canadians”.
The tax measures cover a variety of online services, from streaming platforms to short-term rental accommodations, and are expected to be in effect Canada-wide for GST/HST purposes by July 21, 2021.
GST/HST on Cross-Border Digital Products & Services – The government has taken issue with perceived unfairness that non-resident businesses can sell goods and services to consumers in Canada without charging GST/HST since they are not “carrying on business in Canada” as contemplated by the Excise Tax Act. These measures mirror recent changes to the Québec Sales Tax regime which were made in 2019.
The new rules are expected to require both ‘non-resident vendors’ supplying digital products or services (e.g., Netflix) and ‘non-resident distribution platform operators’ (e.g., the Apple App Store) to both REGISTER for and then COLLECT and REMIT GST/HST, provided certain volume thresholds are met. To facilitate this new approach a “simplified” online registration and remittance framework for foreign vendors/operators will be implemented. The framework will require vendors/operators to collect the correct amount of GST/HST based on the consumer’s “usual place of residence” as determined by their billing address, SIM card, IP Address, and/or banking information among other indicators. However, there will be no input tax credits (“ITCs”) available for vendors/operators using the ‘simplified’ framework!
GST/HST on Goods supplied through ‘Fulfillment Warehouses’ – The government has also noted that there is no general requirement for vendors to collect GST/HST on the final price paid for their goods when they are sold in Canada. Under the current rules, only GST is assessed on commercial goods at the time of import and this does not capture a possible increase in price the goods might experience once sold after being imported to Canada. This is in contrast to resident suppliers, who generally have to collect and remit GST/HST on the final price paid of the goods when they are sold in Canada.
While it is uncertain that this is technically correct (i.e., it is quite possible that non-resident’s carrying on business through fulfilment warehouses might be viewed as carrying on business in Canada for GST purposes), the government has proposed that non-resident distribution platform operators be required to register under the normal GST/HST rules and collect/remit GST/HST in respect of sales of goods through their platforms. This would include, for example, the so-called Amazon warehouse if located in Canada. Operators are expected to be deemed to be the supplier in respect of any sales on their platform by non-registered vendors and would be responsible for collecting and remitting GST/HST on the final price for those goods.
These measures are also expected to apply to all goods shipped from outside Canada directly to a purchaser in Canada (e.g. sent by mail or courier directly). Operators will also face enhanced reporting obligations to the CRA, requiring them to disclose information to the CRA on the third-party vendors using their platforms. Individual non-resident vendors would be required to register if they made similar sales but not through a ‘distribution platform’ (i.e. Amazon Marketplace).
GST/HST on Platform-based Short-Term Accommodation – The government has also proposed steps to ensure that online platforms which arrange for short-term residential accommodation (i.e. Airbnb) collect the appropriate amount GST/HST for the underlying supply of the accommodations. The proposed changes would apply GST/HST to all supplies of short-term accommodations supplied through a digital platform and would require either the platform or the underlying supplier of the accommodation to handle the collecting/remitting.
As indicated, non-residents will have to deal with these new GST/HST rules by July 2021, and it would seem that there is no time like the present to begin getting ready for them!
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