Jay Tulsani:
The Canadian sales tax landscape has significantly changed in recent times, and there have been a lot of updates in the federal and provincial legislation. The idea behind these changes is to create a level playing field between non-resident businesses that's applied to Canadian consumers as well as Canadian businesses.
Lyn Little:
Welcome everyone to another exciting episode of the Cross-Border Tax Podcast series. I'm Lyn Little, National Franchise Leader, and today our focus is on the Canadian sales tax rules significantly impacting sellers on digital platforms. And joining me today to present these changes and break them down and discuss their implications for sellers are Melanie Camire, Indirect Tax Partner at our Montreal office, and Jay Tulsani, Senior Manager in the Indirect Tax Team at our Toronto office. Melanie and Jay, it's great to have you both here.
Jay Tulsani:
Thanks, Lyn. I'm so happy to be here.
Melanie Camire:
Yeah, thanks, Lyn. It's a pleasure to be here.
Lyn Little:
Okay, so I'm going to start this podcast with asking Melanie a question. What are the rules and their potential impact on the consumer business industry?
Melanie Camire:
So today we are focusing on the vendors that are selling their goods, services or intangible goods through a digital platform, either their platform or through a third-party platform. So we will go over some rules on the vendor side when they decide to sell their goods or services through a digital platform, and what are their GST, HST or PST obligations in Canada? So for example, if a shoe retailer decides to sell its shoes through its own platform, it might have registration requirements. If the same shoe retailer sells through a third-party platform such as Amazon, this shoe retailer may still have requirements for sales tax purposes, although the platform is collecting the money and taxes from the consumer. So in another podcast, my colleagues explained the rules for the actual platform operators, it would be also a good idea to listen to that podcast as well.
Lyn Little:
Great. So what are the revenue thresholds that would trigger compliance and registration requirements?
Melanie Camire:
So in Canada, generally the revenue threshold is $30,000 of sales over a 12-month period. So this amount is true for GST, HST and QST. And this year the Manitoba province also modified the threshold to $30,000 of sales. However, we have to be careful because British Columbia has determined that the threshold of sale is $10,000 and Saskatchewan has no actual threshold.
Lyn Little:
Okay, that's great. Thank you. So Jay, I'm going to ask you, can you discuss the specifics of the sales tax rules and how they impact the businesses?
Jay Tulsani:
Yes, Lyn, most definitely. The Canadian sales tax landscape has significantly changed in recent times, and there have been a lot of updates in the federal and provincial legislation. The idea behind these changes is to create a level playing field between non-resident businesses that's applied to Canadian consumers as well as Canadian businesses. So these changes ensure that non-resident suppliers collect and remit sales taxes as required for supplies or services provided to Canadian residents. So today we'll dive into this and we'll break it down into the federal tax versus GST, HST and the provincial sales taxes and what changes have occurred since 2021.
So let's start with the goods and services tax or the harmonized sales tax, the GST and HST. Starting July 1, 2021, any specified non-resident supplier who is not conducting business in Canada and not registered for GST, HST or a specified distribution platform are now required to register under the GST, HST system if the threshold of their sales exceed $30,000 over a 12-month period. And this is starting from July 2021 onwards. Under this new registration requirement, businesses registered for GST, HST is only required to collect and remit on specified supplies to unregistered Canadian customers. Now, this is a new simplified GST registration system which was introduced. However, under the simplified registration system, suppliers cannot claim input tax credits for any expenses they incur in Canada. So it's very important for businesses to take a holistic look as to which registration system is more beneficial for them before making a decision on which path to go on.
Now let's explore the complex world of provincial sales taxes across Canada. I call it complex because every province has come up with their own set of rules and different thresholds and requirements. So let's start with the province of Quebec. Effective on September 1, 2019, specified suppliers outside of Canada making designated supplies to Quebec consumers exceeding $30,000 must register under the specified regime. From January 1, 2019, foreign suppliers and distribution platform operators also fall under this requirement. Under the QST regime, these entities are required to collect QST from Quebec consumers and cannot claim an input tax refund if they're registered under the specified regime. The QST rules most likely in most circumstances always bear the GST, HST rules. So you can see that there is some overlay on how these two, for the GST rules and the Quebec sales tax rules, match.
Now let's discuss Manitoba retail sales tax. Starting December 1, 2021, streaming services providers and media content vendors must register to collect Manitoba retail sales tax on sales exceeding $30,000 annually to Manitoba residents. This includes subscriptions for music, podcast and other media accessible by electronic devices. Online sales platform facilitating such sales are now mandated to register and remit the Manitoba RST to ensure compliance across the board.
Now let's discuss the Saskatchewan provincial sales tax. As of January 1, 2020, the new PST rules apply to operators of electronic distribution platforms such as online accommodation platforms, marketplace facilitators. The online accommodation platforms, for example, include Airbnb. The vendors of these platforms might now be required to register as vendors and collect and remit the applicable Saskatchewan PST on sales generated through their platforms to consumers in the province of Saskatchewan.
Finally, let's look at British Columbia. Effective April 1, 2021, businesses outside of BC selling taxable software or telecommunication services to residents of British Columbia must register and remit BC PST if the sales exceed $10,000 in a year. Marketplace facilitators registered for PST must collect on behalf of the sellers, and this relieves the sellers of collecting the BC PST and remitting to the Ministry of Finance in British Columbia. As you can see that these rules are fairly nuanced and complex, and navigating these provincial sales tax regulations requires careful attention to thresholds, registration requirements and compliance obligations. It applies to you whether you're a digital services provider or marketplace seller or a consumer. Understanding these rules ensures smooth operations and avoids potential penalties or interest.
Lyn Little:
Yeah, you can see that there definitely is a lot of complexity and it's very important to know where you're operating and what the rules are in that location. So I'm going to turn back to Melanie. Can you share some insights on how consumer businesses can ensure that they're compliant with the new rules? And can you also touch on what the penalties are for non-compliance with these new regulations?
Melanie Camire:
Yes, Lyn. So it is difficult to determine the exact impacts for non-compliance because it really depends on the situation of the vendor. So the consequences can vary from one person to the other. But as Jay explained earlier, there are two registration regimes in Canada, in Quebec, so the regular regime and the specified regime. So for suppliers of services and intangibles that are selling through a platform, if these suppliers had to register under the specified regime and they realize now that they should have been registered and they're not, they would register on a going forward basis. However, for vendors of tangible goods, if they had to register under the regular regime, there could be consequences as they were required to register when they exceeded the $30,000 of sales threshold. So that being said, if a vendor realizes that it is not registered and it should, its situation should be reviewed by a sales tax professional to confirm the situation and the potential consequences of not being registered or not having registered on time.
Lyn Little:
Yeah. Are there any new reporting or documentation requirements that we need to be aware of?
Melanie Camire:
So under the PST regimes that Jay explained earlier, it is the platform operators that have to register to PST, collect the PST. So the vendors that are selling through a third-party platform in these provinces have no reporting requirements. However, if they are PST registered for the sales made through the platform, it is the platform operators that have the responsibility to collect and remit the PST, even if the vendor is a PST registrant. However, those vendors that are selling through their own platform have to register, collect and remit the PST if they meet the registration requirements. So on the GST, HST and QST side, generally if the vendor is registered under the specified regime, it would remit the GST, QST on a quarterly basis and can remit it in the currency it was billed.
So this is really a simplified regime where the tax is remitted on a quarterly basis. And as Jay mentioned, there's no tax that can be claimed on expenses. So for vendors of goods, it would register though under the regular regime and remit the taxes depending on the amount of sales it makes annually. So it's either an annual, quarterly or monthly return. And under the regular regime, the vendor can claim taxes on the expenses. Where a vendor makes sales through a platform operator, normally the platform operator would be collecting the GST, HST and QST, but would not take the responsibility of remitting the tax to the tax authorities. Therefore, the vendors have the obligation to report the taxes and verify the report it receives from the platform operators. So we strongly recommend the vendor using a third party platform to review the terms and conditions with the platform operator and ensure to determine who is responsible for the taxes.
Lyn Little:
Yeah, definitely. It makes sense to review that in detail. So what are the first steps in adjusting operational processes to meet compliance requirements?
Melanie Camire:
So the first step: When a vendor decides to sell goods or services or intangible across Canada, it has to review its registration requirements. This will depend if it is selling through its own platform or through a third-party platform. So under the GST, HST and QST regime, we said there are two registration regimes to consider. And where a vendor sells through a third party platform, it should review the terms and conditions and more specifically, what the agreement states about the taxes. Where a vendor has to register under the specified regime, it can only invoice GST or QST to non-registered customers. So in that situation, the vendor has to obtain the registration status of its customers and not invoice GST, QST to those customers who provided their GST, QST requirements number. So this is something that you have to include in your process, especially if you're in the specified regime, to obtain the registration number for your customers and set up your system to only charge tax to those clients that are not registered.
Lyn Little:
Great. Okay, so Jay, can you just share some e-commerce sales tax best practices for our audience?
Jay Tulsani:
Most definitely, Lyn. Understanding registration and compliance obligation is crucial for businesses making sales to Canadian residents. Depending on the sales threshold, businesses might need to register for provincial sales taxes rather than GST, HST. We've discussed the thresholds earlier in the podcast, and you can see why. Seeking advice from an indirect tax specialist and conducting a carrying on business in Canada analysis is an essential step to ensure compliance with all registration and compliance obligations.
Lyn Little:
Okay. And assuming someone is required and does have compliance obligations, can you provide guidance on the steps required to meet their compliance requirements?
Jay Tulsani:
Oh, 100%. So sales tax compliance requirements is dependent on sales thresholds. So it's very important to keep a track of the sales that are made into the provinces as well as into Canada, and to make sure that once you track those sales, then you can make a determination as to where registration is required. And then you have to also ensure that there is proper documentation is collected and stored to support exemptions from sales taxes. For example, under the simplified regime, if you're making sales to a consumer who is a GST registrant, you are required to collect their GST, HST number and extension certificates for provincial sales taxes. So it's very important that those documentation are collected and stored in case of an audit or just for general compliance purposes.
Lyn Little:
Okay, great. So before we wrap up, I want to thank you, Melanie and Jay, for your valuable insights today. So some great information that we learned about how we can understand the current sales tax environment, different compliance strategies to consider as you move forward, and understanding the best practices and how to meet the compliance requirements. So for businesses seeking further guidance or resources, I encourage you to explore our website, bdo.ca, and please don't hesitate to reach out to our indirect tax team. Thank you everyone for tuning into the latest episode of the Cross-Border Tax Podcast. Stay tuned for some more insightful discussions. Until next time, this is your host, Lyn Little, signing off.