Federal Budget and impact on GST/HST and Excise Tax
Canada’s federal government tabled its first Budget in more than two years on 19 April 2021. The Budget proposes amendments to how the Goods and Services Tax (GST)/Harmonized Sales Tax (HST) will be applied to cross-border digital services and property and to the associated draft legislation the federal government announced in late November 2020 as part of its Fall Economic Statement (For prior coverage, see the December 2020 issue of BDO’s Indirect Tax News.) These amendments are intended to increase the effectiveness of the draft legislation and to clarify the application of certain provisions.
The measures, which are set to come into force on 1 July 2021, will require certain nonresident vendors and operators of online platforms to register for, collect and remit GST/HST on the following:
- Sales of digital products and services provided to Canadian customers;
- Goods supplied through fulfillment warehouses located in Canada and made by nonresident vendors directly through websites; and
- Supplies made via short-term accommodation platforms.
Supplies of digital property and services
The initially proposed rules require nonresident vendors supplying digital property and services to consumers in Canada to register for and collect GST/HST on these taxable supplies to Canadian consumers.
The new requirements will apply to nonresident vendors and distribution platform operators whose revenue from taxable supplies of property and/or services exceeds, or is expected to exceed, CAD 30,000 over a 12-month period. A new simplified framework will be used for registration and input tax credits will not be available to registrants using the simplified framework.
Goods supplied through fulfillment warehouses and through websites
Distribution platform operators will be required to register to collect and remit GST/HST on sales of goods located in warehouses in Canada if the sales are made through that platform by nonregistered vendors. Nonresident vendors using Canadian fulfillment warehouses to sell in Canada without the use of a distribution platform will also be required to register for and collect GST/HST under the normal rules.
Fulfillment businesses in Canada will be required to notify the Canada Revenue Agency (CRA) of their activities and maintain certain records related to nonresident clients. Nonresident vendors that make sales to consumers in Canada using their own website generally will also be required to register for GST/HST.
Short-term accommodation platforms
GST/HST will apply to all supplies of short-term accommodations, generally a residential complex or unit supplied for periods of less than 30 days and for more than CAD 20/day, supplied in Canada through an accommodations platform.
The federal government proposed several changes to the proposed e-commerce rules based on stakeholder input, including the following:
- Joint and several, or solidary, liability will be imposed on platform operators and third-party suppliers when false information is provided that affects the collection and remittance of GST/HST by the platform operator.
- Liability on the platform operator for errors resulting from information provided by third-party suppliers will be limited, instead making the third-party supplier liable for any GST/HST in question.
- Those using the simplified framework will be eligible to deduct amounts for bad debts and certain HST point of sale rebates from the tax that the registrants must remit.
- The CAD 30,000 registration threshold used to determine whether a nonresident or distribution platform operator must become registered is not required to include zero-rated supplies made by the person.
- The CRA will have the authority to register persons that are required to be registered under the simplified framework, a rule that already exists under the traditional registration framework.
- The CRA will take a “practical approach to compliance and exercise discretion in administering these measures” for the 12-month transition period following July 1, 2021 for businesses and platform operators affected by these changes that can demonstrate that they have taken reasonable measures to comply, but for operational reasons cannot meet the new requirements.
For prior coverage of the proposed changes, see our article “Digital Sales Tax in Canada.”
On a related note, it was announced in March 2021 that the Quebec Sales Tax (QST) rules that entered into force in 2019 targeting nonresident suppliers of digital property and services will be harmonized with these new GST/HST proposals. QST will now also apply to foreign goods from fulfilment warehouses and all platform-based short-term accommodation supplies.
GST new housing rebate rules broadened
The Budget proposes to broaden eligibility for the GST New Housing Rebate by removing the condition that when two or more individuals buy a new home together, each individual must be acquiring the home for use as his or her primary place of residence or the primary place of residence of a relative. The New Housing Rebate would be available as long as the new home is acquired for use as the primary place of residence of any one of the purchasers or a relative of any one of the purchasers.
This measure would apply to a supply made under an agreement of purchase and sale entered into after 19 April 2021. However, in the case of a rebate for owner-built homes, the measure would apply when construction or substantial renovation of the residential complex is substantially completed after 19 April 2021.
Input tax credit information requirements
The budget proposes to increase the current input tax credit (ITC) information thresholds and to allow billing agents to be treated as intermediaries for purposes of the ITC information rules. The budget proposes that these measures would enter into force on 20 April 2021.
Other Excise Tax measures
The budget included noteworthy Excise Tax changes, including:
- The creation of a joint election mechanism for goods purchased by certain provinces for their own use that specifies the vendor alone would be eligible to apply for the rebate of federal excise tax embedded in the pricing of motive fuels, automobile air conditioners and inefficient vehicles if it jointly elects with the province to be the eligible party.
- The budget proposes to increase the tobacco excise duty rate by CAD 4 per carton of 200 cigarettes, along with corresponding increases to the excise duty rates for other tobacco products.
- A CAD 1 per 10 ml (or fraction thereof) excise duty on vaping liquid subject to certain conditions.
Manitoba Retail Sales Tax
In April 2021, Manitoba joined the rest of the Canadian taxing jurisdictions in taxing supplies of digital property and services. Manitoba announced that:
- Retail sales tax will apply to audio and video streaming services. Streaming service providers will be required to collect and remit the tax.
- Online marketplaces will be required to collect and remit retail sales tax on the sale of taxable goods sold by third parties on their electronic platforms.
- Online accommodation platforms will be required to collect and remit retail sales tax on the booking of taxable accommodations.