In its 2020 Fall economic statement, the Government of Canada proposed new GST/HST measures for Foreign-based vendors:
- GST/HST on Cross-Border Digital Products and Cross-Border services;
- GST/HST on Goods Supplied through Fulfillment Warehouses;
- GST/HST on Platform-based Short-Term Accommodation.
These changes are proposed to be effective July 1,2021.
Under the current GST/HST rules, foreign-based vendors without physical presence in Canada are not required to register and collect GST/HST on their Canadians sales.
The current rules can often result in the GST/HST not being collected on online purchases from non-resident vendors or made through digital platforms.
Quebec government implemented similar rules in 2019 for its Quebec Sales Tax (QST).
GST/HST on Cross-Border Digital Products and Cross-Border Services
A new simplified GST/HST regime will be implemented. Non-resident vendor and digital platform would be required to register under this new simplified regime if their taxable supplies of digital products or services made to consumers in Canada exceed $30 000 CAD over a 12-month period.
This new requirement only applies to sales made to Canadian consumer (B2C). A Canadian consumer is an entity or person that is not registered for GST/HST purposes.
The registration and remittances will be made through an online portal. The simplified GST/HST regime is for collection of GST/HST only. No input tax credit will be available.
GST/HST on Goods Supplied Through Fulfillment Warehouses
Non-resident vendors often use fulfillment warehouses in Canada to store their goods to make the deliveries to Canadian customers on a timely basis. Non-resident vendors also use distribution platforms to sell goods to Canadians customers.
The Canadian government propose new rules to require distribution platform operators to register under the normal GST/HST regime and to collect GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada) when those sale are made by non-resident vendors.
The Canadian government also propose new rules to require non-resident vendors to register under the normal GST/HST regime and to collect GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada).
These new rules will apply when the sales made to Canadian consumers exceed $30 000 CAD over a 12-month period. The non-resident vendors or distribution platform will be eligible to claim an input tax credit on the GST paid at the border.
GST/HST will not apply on the digital platform service fee when made to non-registered vendors.
To assist the CRA in the administration of the GST/HST, distribution platform operators would be required to report information to the CRA on the third-party vendors using their platforms.
Application of GST on All Supplies of Short-Term Rental Through a Digital Platform
The GST/HST applies to supplies of short-term accommodation. For GST/HST purposes, short-term accommodation generally includes a residential complex or a residential unit that is rented to a person for a period of less than one month.
The Canadian Government proposes to apply the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform (“accommodation platform”). The GST/HST would be required to be collected and remitted on short-term accommodations supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator.
How We Can Help
We can work with you to determine whether these new rules and changes apply to your business. Contact your DMCL advisor. If they do, we can help your business comply with the rules and filing obligations.
Contributed by Demers Beaulne. This article is taken from our quarterly bulletin, Canadian Overview, published by Canadian member-firms of Moore North America. The articles in our bulletin are a part of our mission to become the ultimate ally in your success by keeping you informed about current events.