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On November 30, 2020, the Canadian government proposed changes to the Goods and Services Tax/Harmonized Sales Tax (GST/HST) to respond to the increasing foreign-source internet sales. The objective of the changes is to create a level playing field for domestic and foreign sellers. Non-resident digital property and services providers, sellers of goods through fulfilment warehouses and operators of short-term accommodation platforms should review these changes.
Effective July 1, 2021 registration will become mandatory for non-resident providers of digital products or services to unregistered customers located in Canada and non-resident operators of digital platforms, including online shops and marketplaces. This new obligation to charge GST/HST is limited to business-to-consumer supplies and does not extend to business-to-business supplies. Accordingly, a non-resident registered vendor will not be required to charge GST/HST if the business acquiring the supply provides its GST/HST number to the vendor.
Under this new system, non-residents will not be eligible to claim input tax credits.
Similar to all other businesses, the GST/HST registration threshold will be $30,000 of sales in a 12 month period.
This new rule applies to the following three types of supplies:
The Canada Revenue Agency (CRA) will create an online portal to register to simplify the registration process, filing and remittance of tax.
Provincial Sales Tax
E-commerce business may be subject to Provincial Sales Tax in a number of provinces, including Quebec, British Columbia, Saskatchewan and Manitoba.
The General Rule
As a general rule, every taxable supply made in Canada is subject to Goods and Services Tax (GST). For tangible property, supply is considered to have been made in Canada if it is delivered or made available in Canada to a customer. For services, the supply is considered to have been made in Canada if it is performed in whole or in part in Canada. If you conclude that your taxable supply was not made in Canada, then there is no need to register for GST. If you conclude that your taxable supply was made in Canada, keep reading to find out if the “non-resident override rule” applies.
The Non-Resident Override Rule
There is a “non-resident override rule”, which may override your requirement to register for GST under the general rule set out above. This rule provides that a supply made by an unregistered non-resident is not considered to be made in Canada unless the supply is made in the course of a business carried on in Canada:
Carrying on Business in Canada: Canadian law does not provide rules as to what constitutes carrying on business in Canada. Therefore, the only guidance offered is common law jurisprudence and administrative pronouncements by the Canada Revenue Agency (CRA).
To help you determine whether you are carrying on business in Canada, CRA was kind enough to list 12 factors that it considers in evaluating whether a supply is made in the course of a business carried on in Canada:
The CRA goes on to say that the importance or relevance of a given factor in a specific case depends on the nature of the business activity under review, and, as always, the particular facts and circumstances of each case. Based on your analysis, you will need to decide whether you have a significant presence in Canada sufficient to conclude that you will be carrying on business in Canada for GST purposes.
Conclusion: If you conclude that you are considered to be carrying on a business in Canada, you will need to register for GST purposes and will be responsible for collecting the GST on your Canadian sales. You will also be eligible to claim input tax credits for GST paid on its Canadian expenses. Note that a non-resident registering with CRA for GST may be required to provide a security deposit.
We have expertise in assessing GST/HST filing requirements for non-residents rendering services in Canada. Contact us for a free consultation regarding your GST/HST situation:
UHY Victor LLP Canada U.S. Tax Team
Disclaimer: UHY Victor assumes no responsibility or liability for any errors or omissions of this site. The information used in this site is provided for general guidance. This article is not a substitute for professional legal advice.