Publish Date
Sep 25, 2024
Expertise / Canada Tax Update
Understanding Canadian sales tax obligations can be complex, especially for Non-residents making sales in Canada. The Canadian sales tax system comprises five distinct sales tax regimes, each of which has its own legislation and administrative authority. For Non-residents, the rules governing sales tax registration, collection and remittance can differ significantly from rules applying to Canadian-based businesses. This document aims to summarize some of the key elements of the various Canadian sales taxes and to provide guidance on how Non-residents can effectively manage their sales tax responsibilities.
In Canada, Federal Goods and Services Tax/Harmonized Sales Tax (GST/HST) applies on all supplies of property or services made or deemed to be made in Canada. Generally, every person making a supply of property or services in Canada falls within the purview of GST/HST.
The legislation requires that Non-residents register, charge, collect and remit GST/HST on supplies made in Canada where they are “carrying on business” (COB) in Canada. The determination of whether a Non-resident is COB in Canada is generally based on the particular Non-resident having “significant presence” in Canada. The Canada Revenue Agency (CRA) published GST/HST Policy Statement P-051R2 – Carrying on business in Canada, which provides guidelines on how it makes these determinations. Briefly, the CRA considers the following factors:
The importance or relevance of a given factor in a specific case depends on the nature of the business activity. Where there is uncertainty, a Non-resident may, depending on the circumstances, choose to register voluntarily for GST/HST purposes.
Effective July 1, 2021, amendments were made to the legislation to expand the scope of GST/HST for businesses in the digital economy operated by Non-residents of Canada. These rules cause certain Non-resident businesses, even if not physically present in Canada and even if not carrying on business in Canada, to register for GST/HST and to collect and remit the tax where the supplier’s gross revenue exceeds CA$30,000 during a 12-month period from its supply of services and intangible personal property to unregistered Canadians.
These rules specifically target Non-resident suppliers and digital platform operators making or facilitating the following supplies to Canadians:
The reporting and compliance obligations associated with these rules are arguably “simplified” (in the sense that tax returns are less detailed and must be filed less frequently). However, some elements of the rules are nevertheless complicated and could require significant technological changes and upgrades to accounting and tax systems to ensure compliance.
Non-residents subject to this new GST/HST regime are permitted to voluntarily register under the “regular” GST/HST rules. A voluntary registration may or may not make sense for a particular business. Typically, tax returns may be filed more frequently under the preexisting regime, but differences in the application of the regimes could yield a better outcome for a particular business. Accordingly, Non-residents operating in the digital economy should seek advice and assess the cost and complexity of the required reporting under the various regimes.
In general, the QST legislation has been harmonized with the GST/HST legislation such that the requirements applicable to Non-residents with respect to GST/HST also exist under QST legislation.
Quebec first introduced rules for Non-residents in 2019 (including e-commerce operators and accommodation platform operators) selling services and intangibles in Quebec. With the introduction of the amendments to the GST/HST regime applicable to e-commerce businesses in July 2021, Quebec amended its QST legislation to mirror the federal rules effective the same date.
Effective April 1, 2021, businesses located outside of British Columbia (B.C.) that engage in selling tangible property, taxable services and software (including software-related services) to residents in B.C. are generally required to register for BC PST purposes provided their sales exceed CA$10,000 in a 12-month period.
Before this date, registration was required only where an inventory of goods meant for sale within the province was located in B.C. The amendments in 2021 expanded the scope of registration for Canadian sellers, which are now caught under these rules irrespective of the location of their inventory of goods for sale into the province. These rules also capture Canadian and foreign sellers of software and telecommunication services if they sell over CA$10,000 of taxable services in the province.
Effective July 1, 2022, the BC PST legislation was further amended to require online marketplace facilitators and accommodation platform operators to collect PST on taxable sales made through their online platforms. These rules also expanded the scope of “taxable service” for BC PST purposes to include “online marketplace services” as a taxable service when provided to an online marketplace seller. Further amendments were made in 2023 to include certain additional services related to online marketplace services.
MB RST requires vendors carrying out business activities in Manitoba to be registered for MB RST purposes. Out-of-provinces vendors that engage in soliciting, accepting purchase orders and making sales of taxable goods (including software) and/or services where it causes goods to be delivered in Manitoba are generally required to be registered for MB RST purposes.
Following the lead of other jurisdictions, Manitoba introduced similar rules as those under other jurisdictions, effective December 1, 2021, that capture online marketplace facilitators, accommodation platform operators and streaming service providers, requiring them to register and collect MB RST on taxable supplies made through their online distribution and streaming platforms.
The minimum sales threshold for MB RST registration purposes was proposed to be increased to CA$30,000 (from CA$10,000) in the 2024 Manitoba Budget.
SK PST rules require all businesses making retail sale of leases of taxable goods (includes software) and/or services to register for SK PST purposes.
Saskatchewan has similar requirements for online marketplace facilitators and accommodation platform operators (since January 2020). SK PST rules also expanded the scope of “taxable services” by including services delivered, streamed or accessed through an “electronic distribution platform” when provided to residents in the province. SK PST does not have a minimum sales threshold.
Non-residents are more likely caught under either or all of the rules above when engaged in:
While these new rules have helped the tax authorities catch up with ever-growing digital economy businesses and fast-changing e-commerce businesses, they pose significant challenges for these types of businesses.
While the rules under each jurisdiction are similar, all of them have slightly different definitions and, in some cases, revenue/sales thresholds. For businesses with e-commerce supplies in various provinces, these rules have introduced considerable complexity, particularly where the underlying platform(s) were not designed to capture or maintain data relevant to the computation, collection and remittance of the relevant taxes.
With our professional and hands-on approach, A&M can help businesses navigate these challenges pragmatically. A&M can assist businesses by:
If you’re interested in exploring how Canadian indirect tax laws might affect your business and tax planning, or if you want to discuss potential strategies, please reach out to Himanshu Tanwar or Jocelyn Blanchet from our A&M Tax Canada team.
