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Non-resident businesses and digital platform operators (i.e., online marketplaces) selling goods and services online in Canada will need to comply with the new GST/HST rules for e-commerce activity, beginning July 1, 2021. These new rules generally apply when a foreign business or vendor sells to Canadian residents, including cross-border digital products and services, goods supplied through Canadian fulfillment warehouses and short-term accommodations through digital platforms.
Remote digital products and services include, but are not limited to:
Currently, non-residents that have a nexus or sufficient connection to Canada are generally required to register for and collect GST/HST on taxable supplies of goods and services made in Canada. However, non-residents that do not conduct business at those levels in Canada are not required to register for or collect GST/HST. Instead, Canadian-based consumers (including individual consumers) of these digital products and services are required to self-assess the GST/HST and remit tax to the Canada Revenue Agency (CRA).
With the significant increase in digital sales activity that occurred in the last year, these rules put Canadian businesses at a disadvantage compared to foreign competitors. As a result, Canada’s Fall Economic Statement proposed legislation aimed to ensure GST/HST was applied fairly to businesses with digital sales activity in Canada across the board.
The proposed new GST/HST rules taking effect on July 1, 2021, include:
Cross-border digital products and services.
Non-resident businesses and digital platform operators supplying digital products and services to consumers in Canada will generally be required to register for and collect GST/HST under a new simplified regime if their total taxable supplies of digital products or services exceed (or are expected to exceed) CAD 30,000 over any 12-month period (excluding periods prior to July 1, 2021).
Under the proposed simplified regime, non-resident businesses and digital platform operators will be able to use an online portal via the CRA, where they will be able to register for GST/HST and make payments of tax collected. Registrants under the new regime will only be required to collect and remit GST/HST on business-to-consumer sales of digital products and services. The taxes applied on digital sales will generally be based on the consumer’s usual residence in Canada, however, there are some exceptions to this rule if the designated location is not an appropriate basis to determine how taxes should be applied.
Non-resident businesses and digital platform operators registered under the simplified regime cannot claim input tax credits (ITC) to recover GST/HST paid on their business inputs, therefore, they are not required to track GST/HST paid on inputs. If a remote seller anticipates paying significant GST/HST on its business inputs, they should consider registering for GST/HST under the normal rules to recover GST/HST paid on inputs.
Goods supplied through fulfillment warehouses.
Operators of a distribution platform (DPO) will be required to register under the regular GST/HST regime if their fulfillment warehouses store goods sold by non-registered vendors through the DPO’s platform to be delivered to Canadian customers, and if these sales exceed (or are expected to exceed) CAD 30,000 over any 12-month period. Under these proposed rules, resident and non-resident DPOs will be deemed to be the supplier of these sales facilitated for non-registered vendors of goods located in a Canadian fulfillment warehouse or shipped from a place in Canada to a Canadian consumer. DPOs will be required to collect GST/HST on the final sale price of these deemed supplies regardless of whether the supply is made to a consumer or a purchaser registered for GST/HST.
Non-resident vendors will also be required to register under the regular GST/HST regime when they sell goods located in Canadian fulfillment warehouses (or shipped from a place in Canada to a Canadian purchaser) directly to Canadian consumers through their own website (i.e., without the use of a distribution platform) and sales exceed CAD 30,000 over any 12-month period. Registered non-resident vendors will be required to charge GST/HST on all their qualifying supplies regardless of whether the supply is made to a consumer or purchaser registered for GST/HST.
Under the existing GST/HST rules, registered non-resident vendors and registered DPOs are eligible to claim ITCs to recover taxes paid on inputs used in commercial activities, including border taxes paid. Similarly, registered DPOs will be able to claim ITCs to recover border taxes paid by non-registered third-party vendors importing their goods to Canada and selling them through the DPO’s distribution platform under a new flow through ITC mechanism.
Property owners who use digital accommodation platforms to rent out their personal properties or residences will be required to register and follow GST/HST rules if they make more than CAD 30,000 (or are expected to) in taxable supplies over any 12-month period. GST/HST on short-term accommodations supplied in Canada through a digital platform will be collected and remitted by either:
Non-resident accommodation platform operators carrying on business in Canada are required to register for GST/HST under the existing rules. If they are not carrying on business in Canada, they will be required to register under the new simplified regime.
The tax rates will be determined by the GST/HST rate that applies in the province or territory where the rental property is located. GST/HST will apply to service fees or commissions charged by accommodation platform operators to guests booking the rental property for the platform’s assistance in locating, booking and facilitating the overall transaction for the property.
Keep in mind, the accommodation digital platform will also be responsible for maintaining records and reporting information to the CRA each calendar year.
With the effective date for these new rules quickly approaching, be sure your businesses is prepared to comply. To obtain assistance with navigating the new GST/HST rules, including assessing its impact, ensuring compliance and more, contact Doeren Mayhew’s dedicated tax professionals today.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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