As part of the Fall Economic Statement which was released on November 30, 2020, the Canadian government has proposed legislation to implement the government’s intention to increase its tax base by imposing a mandatory GST/HST registration for certain non-resident suppliers of digital products (i.e. Netflix), goods supplied through fulfilment warehouses (i.e. Amazon), and platform based short-term accommodation (i.e. Airbnb). The new rules are scheduled to come into effect on July 1, 2021.
Under current GST/HST legislation many non-resident vendors who sell products and services into Canada are excluded from the requirement to register for and collect GST/HST because unless they carry on a business in Canada the GST/HST legislation simply does not apply to them. This means that they are able to sell their products and services to Canadian consumers without having to collect GST/HST. This gives them a competitive advantage over Canadian businesses who are obligated to register for and collect GST/HST. Although Canadian consumers have an obligation to report and remit the tax that applies to the products and services they acquire from these non-registered non-resident vendors, I suspect there are not too many consumers who adhere to this obligation.
Based on the proposed legislation, in general, non-resident vendors who do not carry on a business in Canada will be obligated to register for and collect GST/HST if they meet the following criteria;
- They make taxable sales in Canada of digital products or services to persons who do not provide evidence that they are registered for GST/HST (note for GST/HST purposes a person can include an individual, a corporation, a partnership, NPO, charity and others)
- Sales in Canada to persons who do not provide evidence that they are registered for GST/HST exceed $30,000 over a 12-month period.
Furthermore, where these products and services are provided through a digital platform and not by the vendor directly, digital platform operators will be required to register for and collect GST/HST in respect of these taxable sales if the vendor is not registered for GST/HST.
GST/HST on Goods Supplied through Fulfillment Warehouses
The pandemic has led to an increase in on-line shopping by Canadian consumers. Much of this on-line shopping is facilitated by what is commonly known as on-line marketplaces. An example of an on-line marketplace is Amazon.com. Most on-line marketplaces leave it up to the third-party vendors who sell goods on their platform to be responsible for determining their requirement to register for and collect GST/HST. Since non-resident vendors who do not carry on a business in Canada are not required to register for and collect GST/HST, they can sell good to Canadian consumers without having to collect GST/HST. This gives them an unfair advantage over Canadian businesses who are obligated to register for and collect these taxes from their Canadian customers.
Many of these on-line marketplaces offer warehouse and distribution services to their on-line vendors. Thus, non-resident vendors can store their goods in the on-line marketplace warehouses and the goods will be shipped from these warehouses located in Canada. The government has proposed to require these on-line marketplace operators to register for and collect GST/HST for goods shipped from fulfillment warehouses located in Canada if the third-party vendor is not already registered for and collecting GST/HST on its sales.
Furthermore, vendors who ship goods directly to Canadian consumers from warehouses located in Canada will also be required to register for and collect GST/HST if their sales to consumers exceed $30,000 in a twelve-month period.
GST/HST on Platform-Based Short-Term Accommodation
A recent trend in short-term rental accommodation involves the use of digital platforms which facilitate the rental experience for both the customer and the short-term rental accommodation supplier. Although the supply of short-term rental accommodation is subject to GST/HST many short-term rental accommodation providers are not registered for and do not collect GST/HST either because they are considered small suppliers (taxable sales are less than $30,000 in the four preceding calendar quarters) and are not required to register for GST/HST or because they may be unaware of their obligation to register for and collect GST/HST in respect of these rentals.
The government proposes to require the operators of the digital platforms to register for and collect GST/HST in respect of rentals acquired through their platforms if the short-term rental accommodation provider is not registered for GST/HST.
The government is seeking comments from stakeholders regarding the proposals. The deadline to provide comments is February 1, 2021.