Non-residents selling services and products to Canadian consumers via the internet may now find themselves required to charge tax on their sales, following important changes to Canada’s sales tax rules on July 1, 2021. These measures are summarized here.
Under the measures, certain overseas vendors supplying products and services through digital platforms must register for, collect, and remit goods and services tax/harmonised sales tax (GST/HST) from July 1. Prior to this date, non-resident traders were not required to charge sales tax in Canada.
These changes were inspired by the OECD’s work on taxing the digital economy and have been put in place in many other jurisdictions in recent years. In Canada, they were first announced in the Fall Economic Statement of November 2020 and included in the 2021 Federal Budget in revised form in April 2021.
The following supplies are covered by the measure:
- cross-border digital products and services;
- supplies of qualifying goods in Canada; and
- platform-based supplies of short-term accommodation.
"Cross-border digital products and services" covers online music streaming and traditional services, among other things, where they are sold by non-resident vendors to Canadian consumers. This also includes “distribution platform operators” (such as Amazon, Spotify, etc.) who facilitate such supplies through their platforms.
"Suppliers of qualifying goods" include non-resident vendors who supply goods that are delivered or made available in Canada, such as goods located in a fulfilment warehouse or goods shipped to a purchaser in Canada. This also includes platform operators who facilitate the supply of such goods.
"Platform-based suppliers of short-term accommodation" include those renting out temporary accommodation through an online platform. Under the new law, short-term accommodation is defined as the rental of accommodation for a period of less than one month and which costs more than CAD20 per night. Hotels and motels, resorts and lodges, and bed and breakfast establishments are considered forms of short-term accommodation, as is any type of overnight shelter that is part of a tour package that includes food and the services of a guide, including a tent.
Registration and other obligations
Affected businesses must register for GST/HST and open a sales tax account, complete and file GST/HST returns, remit tax collected from customers, and in certain circumstances adhere to additional reporting obligations.
The Federal Government has created a new portal on its website for digital economy businesses, where potentially affected traders can find out if they need to register for GST/HST and how to charge and remit tax.
Administration and compliance
The Canada Revenue Authority is taking a lenient approach to compliance during a 12-month transition period, covering businesses that have taken “reasonable measures” to comply with the new rules but have been unable to do so for operational reasons. However, before the CRA exercises its discretion in these matters, affected businesses and platform operators must first obtain the agency’s written approval.