On November 30, 2020, the Government of Canada announced several proposed GST/HST measures relating to the digital economy. The Canadian Government has invited feedback on proposed legislation. The latter aims to ensure the GST/HST applies fairly and effectively to the growing digital economy.
CPA Canada submitted to the federal government in early February 2021 highlighting legislative and administrative issues. Which the Department of Finance Canada (Finance) and the CRA should address. Although CPA Canada supports extending the GST/HST to digital platforms and foreign suppliers, they do have concerns about the changes proposed.
In its 2020 Fall Economic Statement the Government of Canada stated that retail e-commerce rose by nearly 70% in the first eight months of 2020. A full review of the legislative proposals to amend the excise tax act are in the draft legislation.
Cross-border digital products and services.
Goods supplied through Canadian fulfillment warehouses.
Short-term accommodation through digital platforms.
CPA Canada has further summarized the current legislation and its impact on Canadian businesses. Especially how the proposed changes would level the playing field.
Cross-border digital products and services:
Under current rules, foreign vendors with no physical presence in Canada who sell digital products or services to consumers in Canada generally do not have to collect GST/HST.
- Canadian vendors who sell digital products and services do have to charge GST/HST, which makes their products and services more expensive and less competitive.
- Proposed changes would require foreign-based online vendors, and digital platform operators (i.e., online marketplaces) with no physical presence in Canada that exceed the $30,000 CAD registration threshold to register, collect and remit GST/HST.
Goods supplied through Canadian fulfillment warehouses:
Similarly, under the current rules, Canadian-based online vendors selling goods on the same digital platforms, using the same fulfillment warehouses, are required to charge GST/HST on the final price paid.
- The proposed rules would require such vendors and digital platform operators (with sales over $30,000 over a 12 months) to register for GST/HST under the normal regime and collect and remit GST/HST on sales to Canadians of goods located in Canadian fulfillment warehouses.
Short-term accommodation through digital platforms:
Property owners that use digital platforms to rent out their residences or other properties, often don’t charge GST/HST. This poses fairness concerns for hotels and other traditional accommodation providers.
- The proposed changes would be for all platform-based short-term rental accommodation supplied in Canada by Canadian and foreign property owners alike.
Recommendations from CPA Canada for the proposed changes:
- Tax charged in error: Many non-resident suppliers’ systems are not designed to grant tax-only refunds to customers. Finance should consider a rebate mechanism to alleviate these situations so that those who are overcharged can recover the tax directly from the CRA.
- Some digital platforms in other countries charge tax on all transactions. This might result, in unnecessary tax because they are registered under the normal regime.
- Clarifying registration obligations:The CRA needs to reduce tax uncertainty by providing clear, and simple guidance.
- Simplified registration number: The simplified registration number should be distinct. This way Canadian businesses know what type of tax they are paying and whether they should be subject to the tax.
- Recipient providing GST number to not pay tax: Guidance on the extent of due diligence required by suppliers to determine the validity of a GST/HST number provided to them.
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