Year-end GST/HST updates
Canada taxes digital supplies
As part of its Fall Economic Statement, the federal government proposed significant Goods and Service Tax (GST)/Harmonised Sales Tax (HST) changes intended to level the playing field for resident and non-resident vendors. Specifically, non-resident vendors of digital property and services, those selling goods via fulfilment warehouses, and operators of short-term accommodation platforms should take note of these new changes.
Cross-border supplies of digital property and services
Proposed for 1 July 2021, non-resident vendors supplying digital property and services to consumers in Canada will be required to register under a simplified GST/HST framework and to collect GST/HST on taxable supplies to Canadian consumers. A consumer will include persons not registered for GST/HST (persons registered for GST/HST will not be considered consumers for the purposes of these new rules). Operators of third-party distribution platforms will also be required to register under the simplified GST/HST framework and to collect GST/HST on supplies of digital property and services made by non-resident vendors to consumers in Canada. The simplified registration and remittance framework will be similar to the system introduced by Quebec in 2019 to administer its digital tax and will facilitate registration of affected non-residents that are not registered for GST/HST under the normal rules. The new requirements will apply to non-resident vendors and distribution platform operators of the above property and/or services whose taxable revenues from supplies to consumers exceed, or are expected to exceed, CDN 30,000 over a 12-month period. Input tax credits (ITCs) traditionally available to registrants will not be available to those using the simplified registration framework.
Goods supplied through fulfilment warehouses
Proposed for 1 July 2021 (with exceptions), distribution platform operators will be required to register to collect and remit GST/HST under the normal rules (as opposed to the simplified framework discussed above) on sales of goods located in warehouses in Canada if the sales are made through that platform by non-registered vendors. Non-resident vendors using Canadian fulfilment 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. Fulfilment businesses in Canada will be required to notify Canada Revenue Agency (CRA) of their activities and maintain certain records related to non-resident clients. Lastly, non-resident vendors that make sales to consumers in Canada using their own website will also be required to register for GST/HST under the normal rules. GST/HST registration and collection will be required where qualifying supplies, including those made through distribution platforms by non-registered third-party vendors to purchasers in Canada that are not registered for the GST/HST (for example, consumers), exceed (or are expected to exceed) CDN 30,000 in a 12-month period.
Platform-based short-term accommodation
Proposed for 1 July 2021, GST/HST will apply to all supplies of short-term accommodation (generally a residential complex or unit supplied for periods of less than 30 days and for more than CDN 20/day) supplied in Canada through an accommodation platform. If the property owner is registered for GST/HST, the owner will continue to be responsible for collecting and remitting the GST/HST from its guests. If the property owner is not registered for GST/HST, the accommodation platform operator must collect and remit the GST/HST on that property owner’s supplies of accommodation to consumers. Non-resident accommodation platform operators that are not considered to be carrying on business in Canada and making supplies to consumers (as opposed to GST/HST registered persons) will use the simplified registration framework, resulting in no entitlement for ITCs on inputs.
Zero-rating of face masks and shields
Another noteworthy proposal from the Fall Economic Update is the zero-rating of certain face masks and face shields effective 7 December 2020, until such time as their use is no longer broadly recommended by public health officials.