The federal government’s November 30, 2020 Economic Statement included detailed plans for a new requirement for non-resident businesses that sell to Canadian consumers to charge GST or HST on their sales.
Goods imported into Canada have been subject to GST since the GST was first introduced in 1991. However, services and intangible property, such as video streaming, can’t be stopped by Customs at the border because they are not physically brought across the border.
Technically, services and intangibles provided by non-resident businesses to consumers have been subject to GST (or HST) since 1991, but the obligation to report and self-assess this tax is on the consumer. In practice, almost no consumers report and pay the GST/HST.
This gives non-resident suppliers a competitive advantage over Canadian resident businesses, and deprives the government of much-needed revenues. Other countries have begun to impose a “Netflix tax” in recent years. Quebec introduced such a tax in 2019.
Canada is now expanding the GST/HST rules to catch non-resident businesses that sell to consumers, effective July 2021 (though the start date could be delayed). The rules will apply to any non-resident with more than $30,000 of sales per year to Canadian consumers.
Under the new rules, the supplier will determine Canadian residence, and the province of residence (to know what rate of GST or HST to charge), based on the customer’s address, with fairly complex rules that look at physical address, billing address, IP address, phone location, etc.
A customer will be presumed to be a consumer, and required to pay the tax, if they don’t provide the non-resident business with a GST/HST registration number. But being registered for a business that is unrelated to your purchase won’t help you. Suppose you have a consulting business for which you are GST-registered, but you subscribe to Netflix purely for personal reasons. Giving Netflix your registration number will be illegal, and subject to a minimum $250 penalty.
The new rules are expected to take effect July 1, 2021. They have not yet been passed by Parliament, but detailed legislative proposals were released with the Economic Statement.
Although the new rules are described as applying to “e-commerce supplies”, they will also apply to sales of goods to Canadian consumers, where the goods are kept in a warehouse in Canada and shipped from Canada. So expect some non-resident companies that ship goods to you to start charging GST/HST as well.
The new rule will also apply to accommodation platforms, like Airbnb, hotels.com and booking.com. Short-term accommodation is currently taxable, but a small property owner with under $30,000 of taxable revenues per year can currently stay out of the GST/HST system and not charge tax. Under the new rules, the “accommodation platform” will have to charge GST/HST.