Posted on January 13th, 2021 by Cory Prince in Commodity Tax (HST), Cross-Border Tax

Government Attempts to Level the GST/HST Digital Playing Field

photo of laptop with online shopping written on screen and mini cart filled with presents

On November 30, 2020, the government put forward a fall economic update.  Included in this update are proposed changes to the GST/HST requirements for business, specifically cross-border digital products and services, goods supplied through fulfilment warehouses, and short-term accommodations through digital platforms. 

There is no doubt this current pandemic has changed our societies, lives, and economy.  According to the government report, retail e-commerce was up almost 70% in the first eight months of 2020.  Under the current rules, foreign-based digital businesses can sell their goods and services to Canadians without the requirement to charge GST/HST.  Not only does this put a burden on Canadian consumers to remit the tax, it gives foreign-based digital businesses an unfair advantage, undercuts the competitiveness of Canadian companies, and also results in lost tax revenue for the government. 

The government is proposing a number of changes to ensure that GST/HST applies to all goods and services consumed in Canada, regardless of who or how they are supplied. The government’s proposals are aimed to “level the digital playing field” for both foreign-based and Canadian digital businesses, along with providing the government with a revenue stream. 

Cross-border Digital Products and Services

Currently, foreign-based businesses with no physical presence in Canada do not have to charge GST/HST on the sale of digital products or services (e.g. mobile apps, online video games, music streaming) to Canadian resident customers.  The government is proposing that foreign-based businesses selling digital products or services to customers located in Canada will be required to register, collect, and remit GST/HST on their taxable sales to Canadian customers. 

The government is also proposing similar rules for app-based stores or digital marketplace platforms.  To ensure GST/HST applies equally to these sales, the government proposes that digital marketplace platforms will be required to register, collect, and remit GST/HST to ensure a greater fairness for Canadian retailers.

In order to lift the compliance burden, the government proposes that foreign-based vendors and digital marketplace platforms are able to register and account for their GST/HST under a simplified regime. 

Goods Supplied through Fulfillment Warehouses

Online vendors and the digital platforms that host them are generally located outside of Canada but will utilize a fulfillment warehouse located in Canada to store the goods and deliver them to Canadians in a timely manner.  Under the current rules, generally, there is no requirement for foreign-based vendors to charge GST/HST even when they utilize a fulfillment warehouse.  On the other hand, a Canadian business would have to charge GST/HST, which puts them at a disadvantage. 

The government is proposing to apply GST/HST on all sales of goods to Canadians that are from a fulfillment warehouse located in Canada.  Either the foreign-based business or digital platform that facilitates the sale will be required to handle the GST/HST. 

Short-term Accommodations through Digital Platforms

The final focus area for the government on leveling the GST/HST playing field relates to short-term accommodation through digital platforms (e.g. AirBnB).  Many property owners are not aware of the relevant GST/HST requirements with short-term rentals.  In addition, the platforms that facilitate these rentals are not responsible for any of the GST/HST activities.  This results in GST/HST not being applied consistently and the more traditional accommodation providers (e.g. hotels) are at a disadvantage.

The government is proposing to apply the GST/HST compliance requirements to all platform based short-term rental accommodations supplied in Canada.  Therefore, GST/HST will be required to be collected and remitted by either the digital accommodation platform or the property owner on short-term accommodation that is supplied in Canada through a digital platform.

These new GST/HST collection and reporting requirements may come as a surprise, especially for business not located in Canada.  Please feel free to reach out to one of our commodity tax specialists to determine if these rules affect your business.

About the Author

Cory PrinceSenior Manager | CPA, CA

Cory is involved in corporate, personal, estate and trust tax compliance, and tax planning, including corporate reorganizations, estate and intergenerational planning, business acquisitions, mergers and sales, and taxation upon death.
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