Significant GST/HST Changes for the Digital Economy

  • January 17, 2021
  • Paul Casuccio and Devon LaBuik

Overview

On November 30, 2020, the Government released its Fall Economic Statement 2020 titled: Supporting Canadians and Fighting COVID-19. The Statement includes proposals that will impose significant obligations on e-commerce businesses and businesses that import goods into Canada. This includes: (i) non-resident vendors of apps in online marketplaces; (ii) sellers of goods stored in Canadian fulfilment warehouses; and (iii) online rental/accommodation platforms. The rules will generally come into effect on July 1, 2021.

The following elaborates on the new changes and provides an overview of the new GST/HST rules relating to the digital economy:

Digital Products and Services

Under the present rules, a non-resident supplier does not have an obligation to register for, collect, or remit GST/HST unless the supplier carries on business in Canada (with exceptions). For example, if a non-resident supplier makes a supply of digital products or services to a recipient in Canada, the non-resident supplier does not typically collect GST/HST in respect of the supply.  Rather, subject to some key exceptions, the recipient would instead be obliged to self-assess and remit any applicable GST/HST.

However, under the proposed rules: (i) a specified non-resident supplier[1] must register for, collect, and remit GST/HST in respect of sales of digital products and services  made to specified Canadian recipients; and (ii) digital platform operators[2] must register for, collect, and remit GST/HST in respect of sales of digital products and services made, by specified non-resident suppliers, through its distribution platform (above a specific threshold). A “specified Canadian recipient” includes a recipient that: (i) is not registered for GST/HST (or a recipient that has not provided satisfactory evidence of such registration); and (ii) has a usual place of residence in Canada.

The Government will introduce a new online registration and remittance system for specified non-resident suppliers and platform operators. A registrant under the new system will have a quarterly reporting period and unlike ordinary GST/HST registrants, will not be entitled to recover any of its own GST/HST expenses by way of input tax credit.  As such, it may be that such registrants will voluntarily register under the normal process to claim such credits if they have GST/HST expenses.

Importations of Goods and Fulfillment Warehouses

Pursuant to the present legislation, a non-resident, non-registrant has limited GST/HST collection obligations in respect of goods stored at fulfillment warehouses in Canada and sold to Canadians.  However, under the proposed legislation: (i) a non-resident supplier must register for, collect, and remit GST/HST in respect of sales of goods, stored in Canada, and delivered or made available to recipients in Canada (“Qualifying Goods”);[3] and (ii) certain online platform operators must register for, collect, and remit GST/HST in respect of Qualifying Goods supplied through its distribution platform (above a specific threshold). A non-resident person and platform operator must register under the normal GST/HST rules, rather than the newly proposed method described above.

The proposed rules also require warehouse operators, storing goods in Canada for sale by non-resident persons, to: (i) notify the CRA of such storage activities; and (ii) maintain records in respect of the goods. Platform operators will also be required to report information on certain third-party suppliers using its platform to the CRA.

Accommodation Platforms

Under the present legislation, a host renting an apartment or house on an online accommodation platform must collect GST/HST in respect of any rentals (unless the host qualifies for the “small supplier” exemption). The platform operator does not have an obligation to collect GST/HST in respect of such rentals.

However, under the proposed legislation, certain platform operators must register for, collect, and remit GST/HST in respect of rentals of short-term accommodations (i.e. rentals for less than one month) made by non-registered suppliers through its online accommodation platform, as well as certain related accommodation services for which a booking fee, administration fee, or other similar charge is imposed. 

The Government plans to introduce a new simplified registration and remittance system for platform operators (similar to the process discussed above). A platform operator registered for GST/HST under the simplified process cannot recover its own GST/HST expenses by way of input tax credit, but may voluntarily register for GST/HST under the normal process if it wishes to claim such input tax credits.

About the authors

Paul Casuccio is the leader of Fasken’s Global Commodity Tax and VAT practice group.  He works exclusively in this area. Devon LaBuik is a tax associate at Fasken where he assists clients with a wide variety of tax matters relating to income tax and GST/HST.

 

[1]      A “specified non-resident supplier” is a non-resident supplier that is: (i) not registered for GST/HST; and (ii) does not carry on business in Canada.

[2]      The operator is generally the person that controls or sets the essential elements of a transaction between a non-resident supplier and purchaser on the platform (subject to certain exceptions). Certain operators are excluded from this definition.

[3]      More specifically, a supply of Qualifying Goods is a sale of tangible personal property that is, under an agreement for the supply, to be delivered or made available to a recipient in Canada. However, a supply of Qualifying Goods does not include: (i) an exempt or zero-rated supply; or (ii) supplies of tangible personal property sent by mail or courier to a recipient at an address in Canada from an address outside Canada by a supplier or a person acting on behalf of the supplier.

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