Canada GST/HST rules for online marketplace
From 1 July 2021, Non-resident companies selling goods and services online in Canada. It will soon need to contend with new GST/HST rules for ecommerce services. Here, we outline the difficulties for Canada’s GST/HST rule changes.
Canada has taken the decision to change the GST/HST rules. This rules for Canadians purchase goods from non-residents online sellers. However, similar taxes do not apply for all online marketplace sellers. Some of the seller’s physical address could not possible to track, when an app is downloaded, or a service provided. As the non-resident sellers is generally not considered to be carrying on business in Canada. They are not required to register for GST/HST purposes. As a result will not require or permit to charge GST/HST on the supply of online marketplace to Canadian customers.
Overview: proposed GST/HST rules on ecommerce supplies
From July 1, non-resident suppliers of online marketplace goods and services to consumers based in Canada will be required to register for GST/HST and to collect and remit the tax to the Canada Revenue Agency (CRA) on affected sales.
Beyond resulting in less GST/HST revenue being collected by sellers on behalf of the Canada Revenue Agency (CRA). Current registration rules also effectively disadvantage GST/HST registered sellers, including those who sell through distribution platforms and fulfillment warehouses in Canada. Generally, sellers located in Canada are required to collect and remit GST/HST on the final selling price. When online marketplace goods are supplied to customers in Canada. This means the Canadian sellers’ total tax included price to consumers could be higher than the nonregistered non-resident sellers’ price for the same online marketplace goods and services.
Cross-border online marketplace products and services registration threshold
The rules would require affected non-resident sellers and distribution platform operators to collect GST/HST on sales to Canadian customers who are not GST/HST-registered. These non-residents businesses would have to set up processes to collect GST/HST registration information. It will identify the recipient’s residence so they can determine what GST/HST rate applies. This will be one complicating factor when compared with other countries which charge VAT as a single rate.
Current rules
Under current rules, non-residents sellers with no physical presence in Canada. Online marketplace sellers does not have to collect GST/HST. Rather, it is up to Canadian resident consumers to personal tax account and pay the GST/HST to the CRA on the value of online marketplace goods or services consumed where required. Canadian sellers who sell online marketplace goods and services do have to charge GST/HST, which makes their goods and services more expensive and less competitive.
The proposals would require non-residents online sellers. Online marketplace platform operators with no physical presence in Canada that exceed a $30,000 CAD registration threshold. The sellers has to register, collect and remit GST/HST on certain taxable sales using a new simplified regime. These transactions include sales of online marketplace goods and services such as mobile apps and music/movie streaming to consumers in Canada.
Proposed simplified rules
Under the proposed simplified regime, these non-residents would not be required to collect GST/HST from customers registered for GST/HST. However, they also would not be able claim input tax credits to recover the GST/HST paid on expenditures.
If a seller or platform operator charges GST/HST to a registered customer in error. The customer will have to request a refund from the sellers or platform operator directly. They will not be able to claim an ITC or rebate. As it has created difficulties under the tax that the Government of Quebec introduced previously.
The CRA has not yet released information on how the new simplified registration process will work. For example, it is unclear how the registration numbers under the simplified system. It will be issued or whether these registration numbers will differ from registration numbers issued under the normal GST/HST regime.
Non-resident sellers and platform operators falling under these rules. It can choose to register under the normal GST/HST rules so that all the standard GST/HST rules would apply.
Complex reporting obligations
Canadian provinces have already changed rules regarding non-resident supplied online marketplace services. Québec and Saskatchewan moved first back on January 1, 2019. It has been followed by British Columbia (from April 1 2021). We expect Manitoba to soon be added to this list.
This means that non-resident online marketplace businesses with sales in all these Canadian provinces will now be faced with five reporting obligations (here we assume Manitoba’s April budget will reveal new obligations there). The five potential reports are for:
- GST/HST at the federal level
- Québec Sales Tax (QST) in Québec
- Provincial Sales Tax (PST) in British Columbia
- PST in Saskatchewan
- Retail Sales Tax (RST) in Manitoba
Canada tax rates background
Canada comprises ten provinces and three territories (Northwest Territories, Yukon, and Nunavut) all with differing sales tax rates.
These tax rates include Canada’s federal Goods and Services Tax (GST)/Harmonized Sales Tax (HST), Provincial Sales Tax (PST) (called Retail Sales Tax (RST) in Manitoba), and Québec Sales Tax (QST).
The applicable rates depend on the place of the supply in Canada, which varies by type of supply (e.g., physical goods, services, intangibles). Under the general registration regimes, the place of supply of a physical good is the delivery address. The place of supply of a service and of an intangible property that can be used anywhere in Canada. For the simplified GST/HST and QST registration regimes, the place of supply depends on the location of the customer.
The GST rate applies in all provinces where the provincial and federal tax have not been harmonized. In those non-harmonized provinces, other than Alberta, a provincial sales tax also applies. In provinces where the two taxes have been harmonized, only the HST applies.
