On July 1, 2021, new rules came into force that will significantly impact non-resident vendors and online platform operators. Specifically, the changes require certain non-resident vendors and operators of online platforms to register for, collect, and remit goods and services tax (GST)/harmonized sales tax (HST) on:
- sales of digital products and services provided to Canadian customers;
- goods supplied through fulfillment warehouses located in Canada and made by non-resident vendors directly through websites; and
- supplies made via short-term accommodation platforms.
Here's what you need to know about Canada's new digital sales taxes.
Supplies of digital property and services
Non-resident vendors supplying digital property and services to consumers in Canada are required to register for and collect GST/HST on these taxable supplies to Canadian consumers. An example is Netflix which, prior to July 2021, may not have been viewed as carrying on business in Canada and was not required to register for GST/HST. Under the new rules, Netflix is required to register to collect tax from customers in Canada that are not registered for GST/HST, putting Netflix on equal footing with Canadian resident streaming service vendors already required to collect tax from customers.
A consumer includes persons not registered for GST/HST (persons registered for GST/HST are not considered consumers for the purposes of the new rules). Operators of third-party distribution platforms making these types of supplies are also required to register. A simplified registration and remittance framework is available to these registrants that are not otherwise carrying on business in Canada.
The new requirements apply to non-resident vendors and distribution platform operators whose revenue from taxable supplies of property and/or services exceed, or are expected to exceed, C$30,000 over a 12-month period.
A condition of the simplified framework is that non-resident vendors and distribution platform operators using the simplified registration framework are not able to claim input tax credits (ITCs) to recover any GST/HST paid on expenses they incur related to their Canadian sales.
Goods supplied through fulfillment warehouses and through websites
Distribution platform operators are required to register to collect and remit GST/HST under the general regime (as opposed to the simplified framework discussed above) on sales of goods located in warehouses in Canada if the sales are made through that platform by non-registered vendors. Non-resident vendors using Canadian fulfillment warehouses to sell in Canada without the use of a distribution platform are also required to register for and collect GST/HST under the general regime. Fulfillment businesses in Canada are required to notify the Canada Revenue Agency of their activities and maintain certain records related to non-resident clients.
Lastly, non-resident vendors that make sales to consumers in Canada using their own website are generally also required to register for GST/HST under the general regime. GST/HST registration and collection is required where qualifying supplies, including those made through distribution platforms by non-registered third-party vendors to purchasers in Canada that are not registered for the GST/HST, exceed or are expected to exceed C$30,000 in a 12-month period.
Vendors that are registered under the general regime, as opposed to the simplified framework, will generally be eligible to claim ITCs in respect of GST/HST incurred in the course of their commercial activities.
Short-term accommodation platforms
GST/HST applies to all supplies of short-term accommodation (generally a residential complex or unit supplied for periods of less than 30 days and for more than C$20/day) supplied in Canada through an accommodation platform, such as Airbnb. If the property owner is registered for GST/HST, the owner continues to be responsible for collecting and remitting the GST/HST from its guests. If the property owner is not registered for GST/HST, the accommodation platform operator must collect and remit the GST/HST on that property owner's supplies of accommodation to consumers.
Non-resident accommodation platform operators that are not considered to be carrying on business in Canada and are making supplies to consumers (as opposed to GST/HST registered persons) use the simplified registration framework, resulting in no entitlement for ITCs. Accommodation platform operators that are resident in Canada are required to register under the general regime and are able to claim ITCs where all conditions are met.
If all of this sounds familiar, it should. Quebec introduced digital sales tax provisions aimed at non-residents of Canada that are not registered for GST/HST and Quebec sales tax (QST), defined as foreign specified suppliers, as well as specified digital platform operators on Jan. 1, 2019, requiring them to become registered for QST. Beginning Sept. 1, 2019, this QST registration requirement was broadened to include residents and non-residents that are registered for GST/HST but not registered for QST (i.e., Canadian specified suppliers).
Impacted vendors are required to register for QST under the simplified framework where sales exceed C$30,000 to individual consumers in Quebec in the preceding 12 months and relate to intangibles (like software and digitized products) and services. Canadian specified suppliers are required to collect QST on goods as well as intangibles and services. Like the new GST/HST simplified framework, Quebec restricted input tax refunds on vendors using its simplified framework.
Effective Jan. 1, 2020, Saskatchewan introduced rules targeting non-residents making e-commerce sales to purchasers in the province. Online marketplace facilitators and online accommodation platforms are now 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.
British Columbia expanded its PST registration requirements to include Canadian sellers of goods, along with Canadian and foreign sellers of software and telecommunication services. These new provisions come into force on April 1, 2021.
Lastly, Manitoba recently released legislation taxing certain digital sales of goods and services effective Dec. 1, 2021. The following vendors will be caught in the new rules and will be required to register for, collect and remit Manitoba retail sales tax (RST):
- online marketplaces on the sale of taxable goods sold by third parties via their online platforms;
- online accommodation platforms on the booking of taxable accommodations in Manitoba; and
- audio and video streaming service providers on the sale of streaming services (by virtue of being included as telecommunication services).
Some final thoughts
Given the different approaches taken by the federal government and each of the provinces when taxing digital property and services, vendors and platform operators will need to gain a strong understanding of the requirements in each jurisdiction to prevent costly errors. If you need assistance navigating these rules, please contact a member of BDO Canada's Indirect Tax team.
The information in this publication is current as of October 18, 2021
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact BDO Canada LLP to discuss these matters in the context of your particular circumstances. BDO Canada LLP, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.