The Canadian goods and services tax / harmonized sales tax (GST/HST) applies to the supply of most goods and services in Canada at 5%, 13% or 15% depending on the province where a supply is made. For many Canadian consumers, this can often make it attractive to make purchases from the website of a non-resident business or through a digital platform where perhaps no GST/HST would be charged.
The Canadian government has introduced legislation to address the potential loss of sales tax revenue resulting from consumers making online purchases from vendors outside Canada.
As of July 21, 2021, businesses outside Canada that make cross border supplies to Canadian customers may now be required to become registered for GST/HST. The new registration requirements apply to the supply of digital products and services as well as sales of tangible goods that are delivered to purchasers in Canada.
The obligation to collect GST/HST on the Canadian sales applies to the non-resident vendor. However, where a non-resident vendor is not registered, the operator of the digital platform that is used to facilitate the sale will be required to collect the applicable tax.
Digital products and services
Non-resident vendors supplying digital products such as online subscriptions, streaming services and mobile apps to consumers in Canada are now generally required to register for GST/HST and to collect the tax on their sales to Canadian customers.
Digital platforms that facilitate the sales of digital products and services through a website are also generally required to become registered. In many cases, the digital platform operator will be required to collect the applicable sales tax even where the non-resident vendor is not registered.
Goods delivered from fulfillment warehouses in Canada
Non-resident vendors who make sales through their own websites are generally required to register for GST/HST and to collect and remit the tax on the sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada).
Where a non-resident vendor that is not registered for GST/HST makes sales through a digital sales platform, the platform operator is required to register for GST/HST and to collect and remit the tax on the sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada).
“Simplified” GST/HST framework
The new registration requirements discussed above result in GST/HST being charged on most taxable sales in Canada made by non-resident vendors – whether the tax is collected by the vendor or the digital platform that is used to make the sale.
But the new GST/HST measures include more than just expanded registration requirements. The new GST/HST rules also introduce a “simplified” GST/HST framework. The features of the alternative GST/HST framework include the following:
- GST/HST is only collected on sales to Canadian purchasers who are not registered, such as most individuals.
- GST/HST is not collected on sales where the Canadian purchaser informs the vendor that they are registered for GST/HST purposes.
- Persons who are registered under the alternative regime are not entitled to claim refunds of GST/HST paid on Canadian costs as is the case under the “regular” GST/HST regime.
The alternative “simplified” framework could become very complicated for vendors who would need to track the registration status of their Canadian customers. Further, the alternative GST/HST framework may not suit a vendor whose business activity in Canada evolves over time.
Vendors outside Canada who are selling to Canadian purchasers should consider the GST/HST registration implications of their activities.
We would be pleased to discuss whether registration under either of the GST/HST frameworks is required, and the advantages or disadvantages of each framework.
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