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Tax rules for digital sales introduced in Canada: Levelling the playing fields

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Tax rules for digital sales apply from July 1 2021

Michael Lichti of the TMF Group considers the changes to how GST/HST is applied to cross-border digital services in Canada.

At the end of November 2020, the Canadian government announced rules and regulations for foreign vendors related to goods and services tax/harmonised sales tax (GST/HST) in its digital economy. 
In a period where COVID-19 has grabbed the headlines and other news has had less of a focus, time is now of the essence for companies to ensure compliance with these new and highly complex taxation requirements. The new regulations apply from July 1 2021.
Previously, foreign vendors with no physical presence in Canada who sell digital products or services to consumers in Canada generally do not have to collect GST/HST – taxes that Canadian vendors selling these same products and services must charge. This has resulted in Canadian vendors’ products and services being more expensive and therefore less competitive compared with their foreign rivals. The new regulations seek to address this situation by also making foreign companies subject to GST/HST.
The new regulations demonstrate the Canadian government’s intention to create a framework for fair competition, while further governing the operation of the country’s digital economy.
Michael Lichti says “As is the case in a number of countries, the Canadian government is stepping into the online world with regards to taxation. This legislation is meant to level the playing field for Canadian companies that operate in these spaces, so that they are not at a cost disadvantage versus their foreign competitors.”
The new regulations relate to:

  • Cross-border digital products and cross-border services;
  • Goods supplied through fulfillment warehouses in Canada; and
  • Platform-based short-term accommodation.

Cross-border digital products and cross-border services

Non-resident vendors supplying digital products or services (such as online subscription-based video streaming, and including traditional services such as legal and accounting services) to consumers in Canada would be required to register for GST/HST and to collect and remit the tax on their taxable supplies to Canadian consumers.

Goods supplied through fulfillment warehouses in Canada

Non-resident vendors would be required to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfilment warehouses in Canada.

Platform-based short-term accommodation

The GST/HST would be required to be collected and remitted on short-term accommodation supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator.
The new regulations pertain to digital platforms – websites, mobile apps, electronic portals or any other similar electronic interface. Rates will be charged depending on the province of the consumer. The frequency of filing will depend on the volume of sales to Canadian consumers.

Talk to the TMF group

As a leading provider in Canada for several decades, the TMF Group provides many local-specific services alongside the global offering. Local experts ensure you stay up-to-date with market and legislative developments. The TMF Group can assist global businesses expanding into Canada in determining Canadian tax reporting obligations as well as in developing and implementing effective tax planning structures and strategies.
 
Michael Lichti
Country leader (Canada), TMF Group
E: michael.lichti@tmf-group.com
 

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