New QST obligations for non-residents of Quebec
Until recently, businesses were not required to register for QST unless they were deemed to be carrying on business in Quebec. The carrying on business test considers whether you have a significant presence – such as an office, employees or inventory – in the province. Businesses with a presence in Quebec that make taxable supplies in the province would be required to register, but most vendors selling through e-commerce platforms such as Amazon and eBay may not meet the criteria of having a presence, as they may not have offices, employees or inventory there.
Under the old system, Quebec residents purchasing goods online were required to self-assess the QST owing and remit it to Revenue Quebec. Of course, this rarely happened, resulting in a tax leakage (from Revenue Quebec’s perspective). As a result, the rules were updated recently, and non-resident businesses selling to Quebec customers through online platforms are now obligated to register for the QST under a specified registration system and charge their customers appropriately, even if their business does not have a presence in Quebec. In light of this change, here are some questions e-commerce businesses outside the province should consider when selling to customers in Quebec.
Are you selling to specified consumers?
The new rules only apply to vendors selling to specified consumers. When Quebec’s provincial budget was released, it defined a “specified consumer” as someone who is the end user of the product being purchased who is not registered for QST purposes and whose place of residence is located in Quebec. In other words, the new rules do not apply to business-to-business sales. When a business acquires a product from another business, it can claim a QST credit, so there is no risk of leakage (again, from Revenue Quebec’s perspective).
Are you selling tangible or intangible property?
Vendors that are non-residents of Canada only have to charge QST on the supply of intangible property, which is also referred to as incorporeal property and services (e.g., patents, intellectual property, etc.). Tangible property and goods coming from outside Canada are excluded because they have to physically cross the border, at which point GST, HST or QST is charged. However, non-residents of Quebec who are residents of Canada selling to end users or specified consumers in Quebec must charge QST on all goods and services, both tangible and intangible.
Are you a small supplier?
Some businesses that are small suppliers find it too administratively burdensome to register, collect QST and file returns, so they are exempt from the registration rules. If your taxable supplies in Quebec are less than $30,000 in a rolling four-quarter period, you are not required to register for QST. As soon as you cross the $30,000 threshold – either in a single invoice or in a four-quarter period – you’re no longer considered to be a small supplier and are required to register.
Are you ready?
The new rules came into effect for non-residents of Canada Jan. 1, 2019. For residents of Canada outside Quebec, the new rules come into effect Sept. 1, 2019. As of this date, all non-resident e-commerce businesses with annual Quebec sales in excess of $30,000 should be registered and charging customers appropriately. E-commerce businesses should also set up their website or sales platform so the QST line item is added to all transactions shipping to customers in Quebec.
Are you informed?
It is your business’s responsibility to understand any new tax obligations in the territories where you sell products. Like any company expanding into Canada, you need to understand each province's sales tax and any existing local excise tax regime. Not knowing the rules is not a viable excuse for failing to register, as you are expected to know the requirements, as well as your compliance responsibilities. Ideally, your business should have an experienced tax advisor who can keep you informed about any regulatory changes in each of the regions where you do business.
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