Internet sales have increased significantly over the past several years, largely because many businesses operate online stores and can deliver goods directly to the door of their customers. While some retailers sell goods both online and in-store, others operate solely online. No matter what type of retail business you operate, you need to understand your Canadian sales tax obligations.
What is the GST/HST?
The federal Goods and Services Tax/Harmonized Sales Tax (GST/HST) applies to most goods and services supplied in Canada. GST and HST are the same value-added tax, with GST referring to tax at a 5% rate in non-harmonized jurisdictions, and HST referring to tax at higher harmonized tax rates that include a provincial component. HST rates are currently 13% for sales to Ontario and 15% for sales to Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador.
Businesses resident in Canada with annual sales, including those of associates, of $30,000 or less are generally not required to register for GST/HST. Canadian-based retailers with sales of more than $30,000 on an associated basis are required to register under the general GST/HST framework and charge the GST/HST where applicable.
Historically, businesses not resident in Canada were not required to register for GST/HST under the general framework if they were not carrying on business in Canada. However, if a non-resident of Canada making taxable supplies to customers in Canada determines that it is carrying on business in Canada, it would be required to register and collect applicable GST/HST on its sales. The facts of each situation must be considered on their own merits when determining whether a business not resident in Canada is carrying on business in Canada for purposes of GST/HST.
New digital economy businesses rules
Services and intangible property
On July 1, 2021, the Government of Canada expanded GST/HST registration requirements with a “simplified framework” to address the digital economy. In a nutshell, these new registration, collection and remittance rules apply to non-resident businesses that are not registered for GST/HST under the general framework and sell more than $30,000 of services and intangible personal property in a 12-month period to residents of Canada that are not registered for GST/HST.
Also, digital platform operators are required to register under the simplified framework to collect and remit GST/HST on sales of services and intangible property by non-residents of Canada that are not registered for GST/HST under the general framework to residents of Canada that are not registered for GST/HST.
Unlike those registered under the general framework, persons registered under the simplified GST/HST framework are not entitled to claim input tax credits to recover GST/HST paid on their inputs.
Registrants under the simplified framework are required to file returns quarterly, with the return and payment due within one month after the end of each calendar quarter. Remittances can be made using qualifying foreign currencies (currently USD and EUR).
These simplified framework rules apply, for example, to non-resident vendors selling online subscriptions for music or movies directly to Canadian customers and also capture non-resident vendors providing taxable professional services directly to Canadian customers. It is imperative that non-residents selling services and intangible personal property to residents of Canada have a process to obtain and retain the GST/HST registration number of their customers as support for not exceeding the $30,000 registration threshold if not registered, or for non-collection of the tax from particular customers if already registered.
Tangible personal property
Changes also took effect on July 1, 2021 that require non-residents of Canada that make supplies of more than $30,000 of tangible personal property delivered in Canada in a 12-month period to customers that are not registered for GST/HST to register for GST/HST under the general framework if the order is fulfilled from inventory in Canada, or the goods are drop-shipped from a Canadian supplier to the non-resident's customer. These expanded rules are intended to ensure that that non-resident vendors collect GST/HST on their sale price to customers not registered for GST/HST.
Digital platform operators are required to register under the general GST/HST framework if they facilitate more than $30,000 of such sales of tangible personal property in a 12-month period.
Selling online between provinces
A GST/HST-registered online retailer who has a physical presence in one province and sells taxable goods to consumers in other provinces is required to charge the GST/HST at a rate based on where the goods are delivered. For example, a company based in Ontario selling taxable clothing online to a consumer in Nova Scotia is required to collect HST at 15%.
Online service providers generally collect GST/HST at rates based on their customer's address. For example, even if a business that provides services via the internet maintains a physical location in a particular province, it is generally required to charge the rate that applies in the province in which the purchaser is located. This means that a service provider located in Ontario providing services to a consumer in Newfoundland and Labrador is generally required to collect HST at the Newfoundland and Labrador rate of 15%.
Québec Sales Tax (QST) is levied at a rate of 9.975% and operates in a manner similar to GST/HST. Although the rules are generally harmonized with the GST/HST, QST is governed by separate legislation and is administered by Revenu Québec.
Non-residents of Québec
Businesses not resident in Québec are not required to register for QST under the general regime if they are not carrying on business in Quebec. However, if a non-resident of Québec making taxable supplies to customers in Quebec exceeding the $30,000 threshold determines that it is carrying on business in Quebec, it would be required to register and collect applicable QST on its sales.
2019 and 2021 changes for non-residents of Québec
On January 1, 2019, Québec implemented a specified QST regime requiring non-residents of Canada not registered for GST/HST under the general framework to register to collect and remit QST on their sales of services and intangible property to individuals in Québec that were not registered for QST. These registration and collection requirements were expanded on September 1, 2019 to include suppliers not resident in Québec that were registered for GST/HST under the general framework and making supplies of services, intangible personal property or tangible personal property—to also register for QST under the specified regime.
Prior to July 1, 2021, a non-resident supplier was required to register under the simplified regime if its sales to individuals resident in Québec exceeded the $30,000 threshold. On July 1, 2021, the rules were changed to include sales to any entity resident in Québec not registered for QST under the general regime, not just individuals. To support that they are not required to register for QST under the simplified regime, non-resident vendors selling to QST-registered customers in Québec should obtain and retain the QST registration numbers of their customers.
Non-resident vendors that are registered under the simplified regime and sell to QST-registered Québec customers should also obtain and retain the QST registration numbers of those customers to support the non-collection of specified QST from them.
QST rules for digital platform operators not resident in Québec mirror those of GST/HST.
Businesses registered under the specified QST regime are not able to claim input tax refunds (ITRs) to recover QST paid on their business expenses.
The Revenu Québec website allows payment in Canadian dollars, U.S. dollars, and Euros.
Since the QST regime mirrors the GST/HST changes that took effect on July 1, 2021, some non-residents of Québec that were registered under the specified regime and fulfilled orders from inventory in Québec are now required to be registered under the general QST regime. To facilitate the transition to the harmonized rules, Revenu Québec is offering a simplified registration process so suppliers that are registered under the general GST/HST system will not have to provide prescribed information again.
British Columbia PST applies at a rate of 7% on goods, software, and certain services that are purchased or used in the province. Online retailers are required to register to charge and collect PST if they carry on a business through an establishment in B.C. and make taxable sales in B.C. Businesses located in Canada but outside B.C. need to register if they meet all of the following conditions:
- Sell taxable goods to customers in B.C.
- Solicit orders for sale to purchasers in B.C. by advertising (specifically targeted for the B.C. market) or other means
- Accept purchase orders (including over the internet) for taxable goods from customers located in B.C.
- Deliver goods into B.C., whether physically, electronically, or through a third-party courier.
Small sellers are not required to register for PST in B.C. provided certain conditions are met. Generally, a small seller is defined to be a person who is located in B.C. but does not make retail sales in an established business location and has $10,000 or less in retail sales per year.
Effective April 1, 2021, B.C. expanded its PST registration requirements to include foreign sellers of software and telecommunication services. Businesses located outside Canada are required to register to charge and collect PST if they do all of the following:
- Sell or provide taxable software for use on or with an electronic device ordinarily situated in B.C. or sell or provide taxable telecommunication services to customers in B.C.
- Accept orders from customers located in B.C. (including by telephone, mail, email, or Internet) to purchase software for use on or with an electronic device ordinarily situated in B.C. or telecommunication services
- Exceed the $10,000 annual threshold of B.C. revenues of software and telecommunication services
Recent changes were also introduced by B.C. to take effect on July 1, 2022 requiring marketplace facilitators to collect and remit PST on sales of taxable items made through their online platform on behalf of online sellers.
Manitoba levies PST at a rate of 7%. In cases where an online retailer has a fixed place of business (i.e., a head office) in Manitoba, the retailer is generally required to register to collect PST if it makes taxable sales in Manitoba.
A business located outside Manitoba may also be required to register for PST if it has online sales of taxable goods and all of the following conditions are met:
- The goods are acquired to be used in Manitoba (and not for resale)
- The vendor delivers the goods into Manitoba
- The vendor solicits orders for the sale of goods in Manitoba by advertising or by any other means. This would include solicitation by email targeted towards Manitoba customers
- The vendor accepts purchase orders that originate in Manitoba
Saskatchewan levies PST at a rate of 6%. Similar to B.C. and Manitoba, Saskatchewan requires vendors operating businesses in Saskatchewan to register for PST if they are making taxable sales in Saskatchewan.
Non-resident vendors making online sales of goods must register for Saskatchewan PST if they meet all of the following conditions:
- The goods are acquired for use or consumption in Saskatchewan
- The vendor causes the property to be delivered in Saskatchewan
- The vendor solicits orders in Saskatchewan through advertising or any other means
- The vendor accepts purchase orders that originate in Saskatchewan
Since January 1, 2020, online marketplace facilitators and online accommodation platforms are required to register and collect PST on electronic distribution services that are delivered, streamed, or accessed through an electronic distribution platform (e.g., website, internet, portal, or gateway) and online accommodation services that are delivered or accessed through an online accommodation platform, respectively.
Making sense of our sales tax patchwork
GST/HST was intended to be a national sales tax system that applies uniformly across the country. That is clearly not the case today. Despite the government's best intentions, businesses with customers in Canada face a variety of rates and rules based on jurisdiction. For online retailers who easily sell across provincial borders, this tax patchwork makes it even more important to remain up-to-date on sales tax changes across the country.