As Canadians increasingly make online purchases, the federal and provincial governments have adapted their tax laws to capture revenues from digital sales.
In a report issued in 2019, the Auditor General of Canada wrote:
“Overall, we found that the Canadian sales tax system did not keep pace with the rapidly evolving digital marketplace. On the basis of publicly available data, we estimated losses of $169 million in the GST on foreign digital products and services sold in Canada in 2017. In addition, the federal government could not assess and collect all sales taxes on e-commerce transactions.”
Recognizing a need for change, the federal government of Canada, and the Provincial governments of British Columbia, Saskatchewan, Manitoba, and Quebec, have introduced legislative amendments outlining when non-residents need to register for and collect sales tax.
Requirements to Register for the Federal Goods and Services Tax / Harmonized Sales Tax (‘GST/HST’)
Canada’s federal GST/HST is created by the Excise Tax Act (the ‘ETA’). The ETA sets out the tax compliance and filing obligations of taxpayers, including the requirement to register.
Prior to July 2021, non-resident businesses were only required to register to collect the GST/HST if they were determined to be ‘carrying on business’ in Canada. As of July 2021, new registration requirement rules were introduced in addition to the traditional registration requirements still in effect. The new rules are intended to target non-residents who provide digital products or services to Canadian consumers.
A second registration regime was created, commonly known as the ‘Simplified Registration Regime.’ Non-residents who are not registered under the traditional rules must register under the new simplified regime if the non-resident has sales in excess of $30,000 to ‘Specified Canadian Recipients.’
There is a key difference for non-residents registered under the traditional versus the simplified rules. While registrations under the traditional rules are entitled to claim input tax credits, registrants under the simplified rules are not. Furthermore, while registrants under the traditional rules charge GST/HST to essentially all customers, registrants under the simplified rules are only required to collect GST/HST from consumers (and not from businesses that would generally recover the tax by claiming an input tax credit).
Additional amendments to the ETA implemented as of July 1, 2021, require that all digital accommodation platform operators (such as Airbnb) register for and collect GST/HST on essentially all supplies of short-term rentals made through their platforms. Non-resident distribution platform operators may be entitled to register under the simplified registration rules if they so choose.
At the same time, new rules were also introduced to require non-resident suppliers that sell goods through Canadian fulfillment warehouses to register for the GST/HST.
Here’s a quick breakdown of the differences between provincial governments:
Quebec and the Quebec Sales Tax
As with the GST/HST, traditionally, non-residents of Quebec only had to register for QST if they were considered to be ‘carrying on business’ in Quebec. Quebec was the first Canadian jurisdiction (even before the federal government) to tackle the issue of non-resident registrations. In legislative amendments that came into force on various dates in 2019, Quebec changed the registration requirements for three groups of suppliers:
- Foreign Specified Suppliers (non-residents of Canada/not registered for GST/HST)
- Canadian Specified Suppliers (residents or non-residents of Canada/registered for GST/HST)
- Specified Digital Platform Operators
Non-resident businesses that are not registered for QST under the traditional rules and make more than $30,000 in sales to consumers in Quebec over a 12-month period may find themselves required to register as a result of the new rules for Foreign Specified or Canadian Specified Suppliers.
British Columbia and the BC PST
Prior to April 1, 2021, businesses located outside of British Columbia were only required to register for the BC PST if they were actively soliciting orders from BC consumers, or in some instances, if they maintained an inventory within BC.
While the traditional rules are still applicable, effective April 1, 2021, there are additional instances in which a non-resident business may be required to register for BC PST.
Businesses located outside of Canada must register to collect and remit BC PST if all the following conditions are met:
- The vendor sells or provides taxable software for use on or with an electronic device ordinarily situated in BC (or sells or provides taxable telecommunication services to customers in BC)
- The vendor accepts orders from customers located in BC for the purchase of software for use on or with an electronic device ordinarily situated in BC (or telecommunication services)
- The vendor has gross revenue in the previous 12 months from all sales and provisions of software and telecommunication services to BC customers of at least $10,000, (or estimated gross revenues in excess of $10,000 in the next 12 months)
The rules were further amended on July 1, 2022, to require ‘online marketplace facilitators’ such as Amazon to register to collect and remit PST on sales and leases facilitated within BC. These new obligations also apply to businesses providing taxable online marketplace services.
Saskatchewan and the Saskatchewan PST
Prior to January 1, 2020 the Saskatchewan PST legislation ruled that non-resident vendors register for PST if they met the following conditions:
- The vendor solicited orders in Saskatchewan through any means
- The vendor accepted purchase orders originating in Saskatchewan
- The vendor caused the property to be delivered in Saskatchewan
As of January 1, 2020, the Saskatchewan legislation was amended to require operators of Electronic Distribution Platforms (i.e., Amazon), Online Accommodation Platforms (i.e., Airbnb), and Marketplace Facilitators to register as ‘vendors’ for purposes of collecting and remitting the applicable PST on sales generated through their platforms.
Under this new regime, there is no minimum sales threshold and there is no requirement that the vendor be carrying on business within Saskatchewan.
Manitoba and the Manitoba RST
Prior to December 1, 2021, under Manitoba’s traditional registration rules, a non-resident vendor was required to register for Manitoba RST if it held inventory in Manitoba or if the following conditions were met:
- The vendor caused the property to be delivered in Manitoba
- The vendor solicited orders in Manitoba
- The vendor accepted purchase orders that originate in Manitoba
Effective December 1, 2021, the Manitoba RST legislation was amended to require non-residents to register for Manitoba RST where they provide any of the following:
- Streaming services delivering audio and video content (i.e., Netflix)
- Online marketplaces making sales on behalf of third parties to customers in Manitoba through their platforms
- Online accommodation platform operators making supplies of taxable accommodations booked in Manitoba
Under this new regime, non-resident vendors must register for RST unless they can show that their Manitoba sales are less than $30,000 annually and that they have paid Manitoba RST on all inventory acquired for resale in that province.
This website content should be used for general informational purposes only, and not as a substitute for consultation with professional tax, legal, or other competent advisors. Before making any decision or taking any action based upon information contained on this website, you should consult with a DMA professional. If you need further information about anything in the newsletter, please get in touch with your DMA advisor, and we will be pleased to assist you. If you are not a current DMA client, please click here to contact us. |
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