Canada’s journey to tax digital property and services
COVID-19 has impacted the global economy in many ways. In Canada, like many other countries, it accelerated the movement from bricks and mortar retail sales to a new dominance of online, or e-commerce, sales.
In the 2020 Q4 edition of this newsletter we discussed the new federal GST/HST digital sales tax rules. In this issue we focus on important developments on the provincial sales tax (PST) rules related to digital property and services, specifically in Quebec, British Columbia, Saskatchewan, and Manitoba.
New GST/HST Rules
As noted in our last article, effective 1 July 2021, where certain conditions are met, Canada will begin requiring non-residents to register for and collect GST/HST on:
- Sales of digital products and services provided to Canadian customers,
- Goods supplied through fulfilment warehouses located in Canada and made by non-resident vendors directly through websites, and
- Supplies made via short-term accommodation platforms
What About PST?
Quebec ploughed the new “digital sales tax road” in Canada, preceding the federal GST/HST announcement by several years.
On 1 January 2019, Quebec introduced its digital sales tax provisions aimed at non-residents of Canada that are not registered for GST/HST and Quebec Sales Tax (QST), defined as either Foreign Specified Suppliers (FSS) or Specified Digital Platform (SDP) operators, which are platform operators that facilitate certain taxable supplies of intangible products or services in Quebec through the use of a digital platform. FSS and SDP must register for and collect QST on supplies of services and intangibles (for example, software, digitized products) where their sales to individual consumers in Quebec exceed CAD 30,000 in the preceding 12 months. And, like the proposed GST/HST rules and those recommended by the OECD and G20 as part of the 2016 International VAT/GST Guidelines, Quebec provides a simplified registration and filing framework that limits filing frequency to calendar quarters and disallows input tax refunds.
Beginning 1 September 2019 this QST registration requirement was broadened to include Canadian Specified Suppliers (CSS), which are residents and non-residents that are registered for GST/HST but not registered for QST. CSS are required to register for QST under the simplified framework if their sales to individual consumers in Quebec relating to intangibles, services, and tangible goods exceed CAD 30,000 in the preceding 12 months.
Effective 1 January 2020, Saskatchewan introduced rules targeting non-residents making e-commerce sales to purchasers in the province. Online marketplace facilitators and online accommodation platforms are now required to register and collect PST on electronic distribution services that are delivered, streamed, or accessed through an electronic distribution platform (for example, via a website, internet, portal, or gateway) and online accommodation services that are delivered or accessed through an online accommodation platform.
British Columbia expanded its PST registration requirements to include Canadian sellers of goods, along with Canadian and foreign sellers of software and telecommunication services. These new provisions come into force on 1 April 2021.
Lastly, Manitoba has remained mostly silent on the subject of digital sales taxes, remaining an outlier on the Canadian sales tax landscape.
With the continued proliferation of e-commerce sales, Canada and many of its provinces appear to be adopting measures to ensure taxation of digital property and services at the consumer level to prevent lost tax revenue. As a result, non-residents should be mindful of their possible need to comply.