March 2019 Newsletter

Quebec is not part of the Harmonized Sales Tax (HST) system discussed in the quiz above. Federally, only the 5% GST applies for sales to customers in Quebec, and the HST does not apply.

However, Quebec has the 9.975% Quebec Sales Tax (QST), which uses the same rules as the GST for businesses in Quebec. In fact, Revenu Québec administers the GST and the QST together in Quebec, so that businesses have to deal with only one tax administration for both taxes.

Until now, the QST has not been an issue for businesses that do not have offices or locations in Quebec. A business in, say, Ontario that sells goods or provides services to a Quebec customer would charge the 5% GST and nothing more.

However, as of September 2019, Quebec has introduced a requirement on Canadian businesses outside Quebec to register and collect QST on sales to consumers in Quebec. (Similar rules have applied since January 2019 on non-resident businesses.)

These new QST rules are known as the “Netflix tax”, because they were introduced in part to catch businesses like Netflix that provide digital services from outside Canada. However, for Canadian businesses they apply to goods as well as services and intangibles. (Goods from outside Canada are taxed by Canada Customs when they cross the border; digital services and intangibles, like downloaded movies and software, cannot be caught at the border.)

If your business is outside Quebec but sells over $30,000 per year to Quebec consumers, then Revenu Québec will tell you that you need to register under its “simplified” registration system, and that you need to collect QST on your sales to Quebec consumers and remit that QST to Revenu Québec. Businesses using this registration system are not able to claim input tax refunds, the QST equivalent to input tax credits, so any QST they pay cannot be recovered (but for the most part, a business outside Quebec does not pay QST). For details, see the Revenu Québec website.

These rules do not apply to business-to-business sales.

It is not yet clear whether what Quebec is doing is actually legal. Quebec might not legally have jurisdiction to impose tax-collection obligations on businesses outside the province. This will have to be determined by the Courts, and will likely be resolved by the Supreme Court of Canada some years from now. In the meantime, Revenu Québec has said that it is engaged in a “collaborative” effort with non-Quebec businesses to have the QST collected. (Netflix and some other large non-resident businesses have already begun to comply and are collecting the QST.)

It is also uncertain whether Revenu Québec will have any practical way to enforce these new rules on businesses outside Quebec. If you ignore Revenu Québec’s directives, does the province have any remedy? Revenu Québec has stated publicly that it could assess a non-Quebec business, and then collect from that business by garnishing VISA and other credit-card payments being paid by banks in Quebec to merchants outside Quebec — so if this tax is legal, it might have teeth.

Last modified on March 14, 2019 12:00 am
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