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:
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.
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.
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:
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.
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.
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.
The budget included noteworthy Excise Tax changes, including:
In April 2021, Manitoba joined the rest of the Canadian taxing jurisdictions in taxing supplies of digital property and services. Manitoba announced that: