Companies handling digital products will now be subject to a GST/HST tax regime in Canada.
Faced with a booming digital economy, the Canadian Government has announced, in its 2021 federal budget, that companies selling digital goods and services in Canada will be required, from July 1st, 2021, to register for the Goods and Services Tax / Harmonized Sales Tax (GST/HST) regime.
This new regulation is particularly intended to harmonize taxes for fairer treatment of the various businesses operating in the digital economy in Canada. This would eliminate the competitive advantage enjoyed by foreign companies, which is harming the competitiveness of Canadian businesses.
Towards fair taxation of digital economy businesses
The consumption of goods and services derived from digital technology is increasingly widespread and growing continually. Its growth has accelerated sharply during the lockdowns imposed as a result of the Covid-19 health crisis.
In fact, as stated in the Fall 2020 Economic Bulletin, published by the Finance Ministry, electronic retail trade in Canada showed a 70% increase during the first eight months of the 2020 financial year.
Given these facts and the current rules, the Canadian tax authority has decided to introduce a certain number of changes to establish a balance between all digital businesses that make sales on Canadian territory.
Up to now, foreign companies not established in Canada and providing digital services, such as mobile apps, online video games or continuous video and music broadcasting, were not required to be registered for GST/HST.
Conversely, Canadian suppliers are required to collect this tax on their goods and services, which makes them more costly and less competitive. They therefore suffer a tax disadvantage that has repercussions for their competitiveness.
Thus, with effect from July 1st, 2021, businesses trading in the digital economy will be taxable and they will therefore have to register, collect and remit GST/HST. These taxes will be applied to all taxable goods and services consumed in Canada, irrespective of the way they are supplied or who supplies them.
Companies affected by this measure
Cross-border digital goods and services
As previously stated, unlike businesses domiciled in Canada, foreign companies that sell goods and services electronically are exempt from GST/HST if they don’t have a physical presence on Canadian territory. As a result, it falls to Canadian consumers to pay and remit the tax to the Canada Revenue Agency (CRA-ARC).
Thus, with a view to fairness, the Canadian Federal Government wishes to compel non-resident businesses that make sales of taxable goods and services, as well as the operators of digital platforms, to register for GST/HST if the total amount of their sales over a 12-month period exceeds CA$ 30,000.
As a result, with effect from July 1st, 2021, sellers will have to pay this federal tax on their sales of digital goods and services. They will be able to register for the special simplified regime. Thus, the operators of digital platforms and non-resident suppliers will have to bill GST/HST to their Canadian clients who are not themselves registered for it. They will therefore have to get the personal information needed to calculate the GST/HST rate to apply depending on their province; Newfoundland-and-Labrador, Ottawa, New-Brunswick, Ontario, British Columbia, etc.
However, companies will not be liable for GST/HST if the consumers are already registered for it and supply their registration number.
The sale of products located in Canada
In the same way as for cross-border digital services, non-resident businesses that make sales of taxable supplies located in Canada are not liable for GST/HST, although the companies sometimes make use of warehouses to store their goods on Canadian territory.
The Government decided that GST/HST would be levied on non-resident businesses making sales to Canadian consumers through distribution warehouses located in its territory.
This measure also includes the operators of distribution platforms that promote the sale of these products through their platform.
Thus, with effect from July 1st, non-resident businesses and distribution platform operators that have warehouses in Canada will have to include GST/HST in their final selling price, whether or not the consumer is registered for the tax, if the total amount of their sales exceeds CA$ 30,000 over a 12-month period.
Moreover, distribution platform operators will be required to submit an annual return to the Canada Revenue Agency (CRA-ARC), within six months following the end of the relevant calendar year.
And the distribution warehouses will have to notify CRA-ARC that they conduct this type of activity. They will also have to keep a register of their non-resident clients, as well as all the goods they warehouse for them.
Temporary accommodation offered via a digital platform
Many Canadian owners rent their home through accommodation platforms without the requirement to identify with the GST/HST regime. However, hotels and other conventional accommodation providers are required to collect this tax on sales.
Thus, the Federal Government will require any provider of temporary accommodation, whether the owner is Canadian or foreign, to apply GST/HST to their letting.This new regulation will come into force with effect from July 1st, 2021.
Under these new rules, GST/HST on temporary accommodation provided through the operators of accommodation platforms must be collected and remitted as follows:
- By the owner if registered for GST/HST and if the rental income is above the registration threshold of CA$ 30,000 over a 12-month period.
- By the accommodation platform operator if the owner is not registered for GST/HST.For this reason, it will be considered as the provider of the temporary accommodation.
Furthermore, accommodation platform operators must keep a register of the owners and providers making use of their platform and must submit a return to CRA-ARC within six months following the end of each calendar year.
To support you with this reform, ASD Group makes a team of experts available help you with the administrative procedures and will ensure your organization complies with Canadian taxation and abides by this new tax.
For more information, contact-us.
This article is intended for informational use only and does not constitute legal, financial or tax advice. For specific advice applicable to your business, please contact us.
