In its 2020 Fall Economic Statement, the Government of Canada announced (1) the implementation of a new and parallel mandatory GST/HST registration system for certain non-resident vendors, (2) the application of the GST/HST with respect to goods supplied through fulfillment warehouses in Canada, and (3) the application of the GST/HST on all supplies of short-term rental accommodation facilitated through a digital platform.

Background: Why the Government is Acting

Currently, in the case of the acquisition of digital products and services, Canadian consumers are, in theory, required to self-assess the GST/HST payable to the extent the supplier is not registered for GST/HST purposes. However, consumers seldom comply, and such supplies by non-Canadian businesses, including well-known music and video streaming services, are effectively not subject to GST/HST.

Also, while applicable duties and taxes are levied at the border on the value for duty of goods at the time of importation, the GST/HST is not always charged on the final price paid for the goods when they are ultimately sold to Canadians through distribution platforms and fulfillment warehouses located in Canada. In practice, the difference between the value of the goods at the time of importation and the final price paid ends up outside the scope of the GST/HST regime.

Finally, the use of digital platforms to supply short-term rental accommodation causes discrepancies with respect to GST/HST collection and compliance between different suppliers of short-term accommodation.

What Will Be Required as of July 1, 2021

Starting July 1, 2021,

  • certain non-resident businesses providing digital products or services will have an obligation to register and collect the GST/HST from their non-registered GST/HST Canadian clients under a simplified regime;
  • certain distribution platform operators and non-resident vendors will have an obligation to register and collect the GST/HST (under the normal regime) with respect to the sales of goods that are located in fulfillment warehouses in Canada or shipped from a place in Canada to clients in Canada; and
  • certain accommodation platform operators (including non-resident operators) will have an obligation to register and collect the GST/HST on supplies of short-term accommodation in Canada made through the platform.

What Businesses Should Know

Businesses with no physical or significant presence in Canada that are not registered for GST/HST purposes, but that make supplies directly to Canadian consumers, should be aware of the proposed new GST/HST registration requirements.

It is noteworthy that a simplified and parallel online GST/HST registration and remittance regime (the “Simplified Regime”) will be created for non-resident businesses who do not carry on business in Canada, as discussed below.

Digital products or services

Non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada (such as online video gaming, video and music streaming services, etc.) will generally be required to register under the Simplified Regime.

Non-resident distribution platform operators (i.e., websites, online stores, etc.) facilitating supplies of digital products or services from non-resident vendors to Canadian consumers will also generally be required to register for the GST/HST and to collect and remit the tax on such supplies.

Goods supplied through fulfillment warehouses

With respect to goods supplied through fulfillment warehouses in Canada:

  • Distribution platform operators will generally be required to register under the normal GST/HST rules (and not the Simplified Regime) and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by non-registered vendors through distribution platforms.
  • Non-resident vendors will generally be required to register under the normal GST/HST rules (not the Simplified Regime) and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by the non-resident vendors on their own (i.e., they are not made through a distribution platform).

Short-term rental accommodation

With respect to supplies of short-term rental accommodation in Canada, GST/HST will generally be required to be collected and remitted as follows:

  • by the property owner (or person responsible for providing the accommodation), where the owner (or responsible person) is registered for the GST/HST under the normal regime; or
  • by the accommodation platform operator, where the property owner (or responsible person) is not registered for the GST/HST. In these circumstances, the accommodation platform operator would be deemed to be the supplier of the short-term accommodation and will be required to register under the normal regime. It is worth noting that non-resident short-term rental accommodation platform operators may be required to register under a regime like the Simplified Regime if they are not otherwise required to register under the normal regime.

Key Features

Simplified regime

  • Simplified online registration and remittances through an online portal.
  • Non-resident vendors and non-resident distribution platform operators using the Simplified Regime will be required to collect and remit the GST/HST only on the supply of digital products and services made to Canadian consumers. Conversely, they would not be required to collect and remit the GST/HST on their supplies of digital products or services to businesses (i.e., registered for GST/HST).
  • A registration threshold will be applicable:
    • For a non-resident vendor, if their total taxable supplies of digital products or services made to consumers in Canada exceed, or are expected to exceed, $30,000 over a 12-month period.
    • For a non-resident distribution platform operator, if their total taxable supplies of digital products or services made to consumers in Canada, including the supplies of digital products or services of non-resident vendors to consumers in Canada that the operator facilitates, exceed, or are expected to exceed, $30,000 over a 12-month period.
  • Non-resident vendors and non-resident distribution platform operators will be required to collect the GST/HST on their supplies of digital products or services if the consumer’s usual place of residence is in Canada. The applicable rate will vary depending on the province of residence.
  • Non-resident vendors and non-resident distribution platform operators using the Simplified Regime will not be able to claim input tax credits to recover any GST/HST paid on their business inputs.

Fulfillment warehouses in Canada

  • All goods that are imported into Canada will continue to be subject to applicable duties and taxes on the value of the goods at the time of importation.
  • Distribution platform operators (whether resident or not) will be deemed to be the suppliers of sales they facilitate, when the goods are sold by non-registered vendors (whether resident or not) and located in fulfillment warehouses in Canada or shipped from a place in Canada to a purchaser in Canada. Distribution platform operators will be required to collect and remit the GST/HST on the final sale price of the goods for which they will be deemed to be the supplier.
  • Distribution platform operators (whether resident or not) will be required to register under the normal GST/HST rules and to collect and remit the GST/HST if their total qualifying supplies to purchasers in Canada that are not registered for GST/HST purposes (e.g., consumers), including those made through their platforms by non-registered third-party vendors, exceed or are expected to exceed $30,000 over a 12-month period.
  • Non-resident vendors that make sales of goods without the use of a distribution platform (e.g., by offering and selling the goods through their own website directly to Canadians) will also be required to register under the normal GST/HST rules if their total qualifying supplies to purchasers in Canada that are not registered for GST/HST purposes (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.

Platform-based short-term accommodation

  • The GST/HST will apply to all taxable supplies of short-term accommodation in Canada that are facilitated by an accommodation platform operator.
  • Underlying third-party suppliers of short-term accommodation (i.e., property owners or responsible persons) who are registered for GST/HST purposes will continue to be required to collect the GST/HST on their supplies;
  • The operator of an accommodation platform that facilitates the supply of a short-term accommodation in Canada by third parties that are not registered for GST/HST purposes will be deemed to be the supplier of the accommodation for purposes of the GST/HST.
  • An accommodation platform operator that facilitates or expects to facilitate, over a 12-month period, more than $30,000 in taxable supplies of short-term accommodation in Canada will be required to register for and collect and remit the GST/HST on such supplies unless the underlying third-party suppliers of the accommodation are registered for GST/HST purposes.
  • Non-resident accommodation platform operators not carrying on business in Canada will be able to use a simplified registration/remittance system like the Simplified Regime.

Next Steps

The Government of Canada is currently seeking stakeholders’ views and comments regarding the above proposals. All comments should be submitted by February 1, 2021 to the following email address: [email protected]