Canada: Proposal for non-resident vendors and e-platform operators to be subject to GST / HST
Canada: Proposal for non-resident vendors, e-platform
A proposal would require certain non-resident vendors and operators of electronic platforms (e-platforms) to register for, collect, and remit goods and services tax / harmonized sales tax (GST/HST) with regard to sales of digital products and services provided to Canadian customers, or for goods supplied through fulfillment warehouses located in Canada.
Essentially, the proposal would make GST/HST changes related to three types of supplies:
- Sales of cross-border digital products and services
- Sales of goods through fulfillment warehouses
- Sales of short-term accommodation through digital platforms
Finance is accepting comments on these proposals until 1 February 2021.
Quebec has indicated that it is studying these GST/HST changes and could later announce whether it would harmonize the Quebec sales tax (QST) rules with these proposed GST/HST measures.
Sales of cross-border digital products and services
Non-resident vendors that sell digital products or services to Canadian customers, as well as distribution platform operators that facilitate such sales of products and services of third-party vendors through their platforms, would be subject to the new GST/HST rules.
Non-resident vendors and non-resident distribution platform operators that are not registered under the normal GST/HST registration rules and that meet the rolling registration threshold of $30,000* over a 12-month period would be required to register for, collect and remit GST/HST on their qualifying taxable sales under a new simplified GST/HST registration and remittance system (notwithstanding that they may not have a presence or be considered to be “carrying on business” in Canada). However, these vendors and platform operators could elect to register under the normal GST/HST rules in order to claim input tax credits for GST/HST paid on their expenditures.
These GST/HST changes are proposed to apply to supplies of cross-border digital products and services for which consideration becomes due after 30 June 2021 or is paid after 30 June 2021 without having become due.
Sales to customers
Non-resident vendors and non-resident distribution e-platform operators that register under the new simplified GST/HST registration system and that sell digital products or services generally would have to collect GST/HST from Canadian customers that are not registered for GST/HST purposes. As a result, these vendors and platform operators would have to begin to collect GST registration information, and identify the recipient’s’ residence in order to determine the applicable GST/HST rate. In some instance, the recipient’s residence would not be an appropriate basis to determine the place of consumption of the supplies, such as when the services relate to a specific province that differs from the province of residence.
Sales of goods through fulfillment warehouses
The proposed GST/HST changes would apply with regard to non-resident vendors and distribution platform operators (i.e., online marketplaces) that facilitate the sales of goods located in Canadian fulfillment warehouses. These vendors and platform operators would have to register for, collect and remit GST/HST under the normal GST/HST rules (i.e., not the new simplified registration system), unless their total sales are below the $30,000 registration threshold (which would be calculated differently for vendors and platform operators). Fulfillment warehouses would also have new filing GST/HST obligations under these proposals.
These changes are proposed to apply for supplies made after 30 June 2021 and supplies made before July 2021 if all the consideration is payable after 30 June 2021.
Distribution platform operators
Distribution e-platform operators that are residents or non-residents of Canada would be subject to the new rules when they have non-registered vendors selling goods through their platforms and those goods are located in fulfillment warehouses in Canada, or are shipped from a location in Canada to consumers and businesses in Canada. A distribution platform operator would be subject to these proposed rules if the platform operator controls certain key elements of the transactions.
Under the proposals, platform service fees that distribution platform operators charge to non-registered vendors related to certain sales of goods would not be subject to GST/HST. This measure is intended to limit the extent to which GST/HST costs are embedded in the prices of the goods.
In addition, under the proposals, distribution platform operators that facilitate sales of qualifying goods through their platforms would be required to file an annual information return with the Canada Revenue Agency (CRA). The information return would have to be filed for the calendar year no later than six months after the end of the calendar year.
Sales of short-term accommodation through digital platforms
The proposal would also apply GST/HST to taxable short-term rental accommodation facilitated through accommodation platforms (i.e., digital platforms). Under this change, the accommodation platform operators (or the property owner if the owner is registered for GST/HST) would be required to collect and remit GST/HST on all short-term accommodation in Canada facilitated through digital accommodation platforms, except when the operator facilitates $30,000 or less of taxable supplies of short-term accommodation in Canada with regard to accommodation suppliers that are not registered. An accommodation platform operator would be subject to these proposed rules if that operator controls certain key elements of the transactions.
Accommodation platform operators that conduct business in Canada would still be subject to the current registration and other GST/HST rules as proposed. However, non-resident accommodation platform operators would be able to use the new simplified GST/HST registration system.
These proposals provide that the GST/HST rate (5%, 13% or 15%) to apply to the short-term rental accommodation would essentially be based on the location of the property. Further, service fees charged by the accommodation platform operators to non-registered accommodation suppliers would not be subject to GST/HST, in an effort to limit the extent that GST/HST costs are embedded in the price for the accommodation. However, service fees charged by the accommodation platform operators to guests would be subject to GST/HST at the location-based rate.
In addition to collecting and remitting GST/HST, accommodation platform operators would be required to maintain records, and to file an annual information return with the CRA. This return would be required to be filed for the calendar year no later than six months after the calendar year.
These GST/HST changes are proposed to apply to supplies of short-term accommodation in Canada for which consideration becomes due after 30 June 2021 or is paid after 30 June 2021 without having become due.
To prepare for these changes (scheduled effective date of 1 July 2021), non-resident vendors and e-platform operators must determine how their business operations could be affected and which processes and systems would have to be adjusted to comply with these new obligations.
Read a December 2020 report [PDF 107 KB]prepared by the KPMG member firm in Canada
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