Fall economic statement 2020 – Sales tax measures

Application of the GST/HST in Relation to E-commerce Supplies

The Government proposes a number of changes to the GST/HST system to ensure that the GST/HST applies in a fair and effective manner to the growing digital economy. These changes relate to:

• GST/HST on Cross-Border Digital Products and Cross-Border Services
• GST/HST on Goods Supplied through Fulfillment Warehouses
• GST/HST on Platform-based Short-Term Accommodation

GST/HST on Cross-Border Digital Products and Cross-Border Services

To improve the collection of the GST/HST and level the playing field between resident and non-resident (NR) vendors, the Government proposes that NR vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax to the CRA on their taxable supplies to Canadian consumers. In many instances, digital products or services may also be supplied to consumers in Canada through digital platforms that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). To ensure that the GST/HST applies equally to these supplies, it is also proposed that distribution platform operators be generally required to register for the GST/HST and to collect and remit the tax on the supplies that these platforms facilitate of digital products or services of NR vendors to Canadians. The proposed new simplified system would include the following key features:

• Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by NR vendors of digital products or services and NR distribution platform operators that facilitate the supply of a NR vendor’s digital products or services to consumers in Canada.
• Business-to-consumer supplies only: NR vendors and NR distribution platform operators would be required to collect and remit the GST/HST only on the supply of digital products and services made to Canadian consumers.
• General rule – tax based on consumer’s residence: With certain exceptions, NR vendors and NR distribution platform operators would be required to collect the GST/HST on their supplies of digital products or services if the consumer’s usual place of residence is in Canada.  
• Exceptions: There would be exceptions to this general rule for transactions where a consumer’s usual place of residence is not an appropriate basis for determining where, or whether, the place of consumption is in Canada and if the GST/HST would apply.
• No input tax credits: NR vendors and NR distribution platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs.
• Registration threshold:
  • For a NR vendor, registration would apply if their total taxable supplies of digital products or services made to consumers in Canada exceed, or are expected to exceed, $30,000 over a 12-month period.
  • For a NR distribution platform operator, registration would apply if their total taxable supplies of digital products or services made to consumers in Canada, including the supplies of digital products or services of NR vendors to consumers in Canada that the operator facilitates, exceed, or are expected to exceed, $30,000 over a 12-month period.

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of digital products and services from NR vendors and NR distribution platform operators, unless the purchase is for use exclusively in the business’s commercial activities.

A penalty would apply if a person provides a GST/HST registration number to a NR vendor or NR distribution platform operator to evade, or attempt to evade, tax on the purchase of digital products or services acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number and is nevertheless charged the GST/HST, the business would be able to request a refund from the NR vendor or NR distribution platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of cross-border digital products or services to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

GST/HST on Goods Supplied through Fulfillment Warehouses

NR vendors are increasingly selling goods to Canadians through digital platforms, also known as online marketplaces, that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). These distribution platforms may also store the goods of third-party vendors in fulfillment warehouses in Canada and ship these goods to purchasers in Canada on a timely basis after the goods have been sold through the platforms.

In order to level the playing field between resident and NR vendors, the Government proposes to:

• require distribution platform operators to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by non-registered vendors through distribution platforms;
• require NR vendors to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by the NR vendors on their own (i.e., they are not made through a distribution platform); and
• require fulfillment businesses in Canada to notify the CRA that they are carrying on a fulfillment business and to maintain records regarding their NR clients and the goods they store on behalf of their NR clients.

The following framework outlines how the GST/HST would apply under this proposal.

• Duties and taxes levied at the border: All goods that are imported into Canada will continue to be subject to applicable duties and taxes on the value of the goods at the time of importation.
• Platform operator deemed supplier: Distribution platform operators (whether resident or not) would be deemed to be the supplier in respect of sales they facilitate by non-registered vendors (whether resident or not) of goods that are located in fulfillment warehouses in Canada or shipped from a place in Canada to a purchaser in Canada (hereinafter referred to as a “qualifying supply”). Distribution platform operators would be required to collect and remit the GST/HST on the final sale price of the goods for which they were deemed to be the supplier.
• Platform operator registration threshold: Distribution platform operators (whether resident or not) would be required to register under the normal GST/HST rules and to collect and remit the GST/HST if their total qualifying supplies, including those made through their platforms by non-registered third-party vendors, to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.
• Recovery of tax on inputs: Registered distribution platform operators would be eligible to claim input tax credits in respect of the tax paid at the border by non-registered third-party vendors that import their goods into Canada and sell their goods through distribution platforms (i.e., there would be a flow through of the input tax credits).
• No tax on platform services: Distribution platform operators would be deemed to not have made a supply to the non-registered third-party vendor of services relating to the deemed supply of goods made through the platform. This proposed deeming rule recognizes that non-registered third-party vendors are unable to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, and helps avoid the embedding of the GST/HST in the final price of goods for which the distribution platform operator would be deemed to be the supplier.
• Drop shipment exception: This proposal would be designed to ensure that it would not conflict with the existing drop shipment rules.
• Platform operator information reporting obligations: Distribution platform operators would be required to report information to the CRA on the third party vendors using their platforms.
• NR vendor registration and collection obligations: NR vendors that make sales of goods without the use of a distribution platform (e.g., by offering and selling the goods through their own website directly to Canadians) would also be required to register under the normal GST/HST rules if their total qualifying supplies to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.   
• Fulfillment business reporting and record keeping obligations: Persons carrying on a fulfillment business in Canada would be required to notify the CRA that they are carrying on a fulfillment business and maintain certain records on their NR clients.  For the purposes of this proposal, a person would carry on a fulfillment business if they provide services of storing goods in Canada (other than services that are incidental to a freight transportation service) that are offered for sale by NR persons.

Coming into Force

The proposed new rules would generally apply to supplies made on or after July 1, 2021 and supplies made before July 1, 2021 if all of the consideration is payable on or after July 1, 2021.

GST/HST on Platform-based Short-Term Accommodation

The GST/HST applies to supplies of short-term accommodation – which for GST/HST purposes, generally includes a residential complex or a residential unit that is rented to a person for a period of less than one month.  The increasing popularity of the use of digital platforms to supply short-term accommodation poses a number of challenges for GST/HST compliance.

In order to ensure that the GST/HST applies consistently and effectively with respect to supplies of short-term accommodation in Canada facilitated by platforms, the Government proposes to apply the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform (hereinafter referred to as an “accommodation platform”). Under the proposal, the GST/HST would be required to be collected and remitted on short-term accommodations supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator as follows:

• The property owner (or person responsible for providing the accommodation – responsible person), where the owner (or responsible person) is registered for the GST/HST.
• The accommodation platform operator, where the property owner (or responsible person) is not registered for the GST/HST. In these circumstances, the accommodation platform operator would be deemed to be the supplier of the short-term accommodation. This approach recognizes their necessary and fundamental role in making these supplies, and limits administrative and compliance costs for the parties involved.

General Framework

• Taxable short-term accommodation provided through a platform: The GST/HST would apply to all taxable supplies of short-term accommodation in Canada that are facilitated by an accommodation platform operator. This would generally include a rental of a residential complex or a residential unit (or part of a unit) to a person for a period of less than one month where the price is more than $20 per day.
• Registration and collection requirement for accommodation platform operators: An accommodation platform operator that facilitates or expects to facilitate over a 12-month period more than $30,000 in taxable supplies of short-term accommodation in Canada where the underlying third-party suppliers of the accommodation are not registered for the GST/HST would be required to register for and collect and remit the GST/HST on such supplies using a simplified registration/remittance system.
• Tax rate: Suppliers of taxable short-term accommodation in Canada, including accommodation platform operators, would need to determine the rate of the GST/HST that applies and to charge and collect tax at the correct rate based on where the short term accommodation is situated.
• No tax on platform services to non-registered underlying suppliers: Some accommodation platform operators may charge service fees to non-registered third-party property owners/suppliers in respect of the supplies of short-term accommodation in Canada that they facilitate. Accommodation platform operators registered for the GST/HST would be deemed to not have made a supply of services to the non-registered third-party property owner/suppliers of short-term accommodation in Canada relating to facilitating the supply of the accommodation. This proposed deeming rule recognizes that non-registered third-party property owners/suppliers are unable to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, and helps avoid the embedding of the tax in the final price of the accommodation for which the platform operator is deemed to be the supplier.
• Tax on platform’s guest fees: Some accommodation platform operators may charge the guest who is acquiring the short-term accommodation a service fee or commission for the services they provide in helping the guest to find and book an accommodation and in facilitating the transactions between the guest and the third-party property owner/supplier. The GST/HST would be applicable on the platform’s guest fee to a guest that is in respect of taxable short-term accommodation property situated in Canada, and the rate of GST/HST would be based on the location of the property in Canada (ensuring the same rate of tax applies on the guest fee as on the accommodation).
• Platform operator record keeping obligations: Accommodation platform operators would be required to maintain records and report information to the CRA, including information on the underlying third-party property owners/suppliers using their platforms.

Simplified Requirements for NR Platforms

To facilitate compliance with these requirements, a simplified GST/HST registration and remittance framework would be available.

• Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by NR accommodation platform operators that facilitate taxable supplies of short-term accommodation in Canada where the underlying third-party property owners/suppliers of the accommodation are not registered for the GST/HST.
• Business-to-consumer supplies only: NR accommodation platform operators using the simplified registration system would be required to collect and remit the GST/HST on supplies of taxable short-term accommodation in Canada made to consumers. NR accommodation platform operators using this system would not be required to collect and remit the GST/HST on their supplies to a business. For these purposes, an entity or person that is registered for the GST/HST would be considered a business and any other entity or person would be considered a consumer. Nonresident accommodation platform operators would rely on the GST/HST registration number of a business as proof of its business status.
• No input tax credits: NR accommodation platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Those NR platform operators that wish to claim input tax credits for the GST/HST paid may register under the normal GST/HST registration process.

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of short-term accommodation facilitated by a NR accommodation platform operator that is registered under the simplified GST/HST registration/remittance system, unless the purchase is for use exclusively in the business’s commercial activities.

A penalty would apply if a person provides a GST/HST registration number to a NR accommodation platform operator to evade, or attempt to evade, tax on the purchase of short-term accommodation in Canada acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number to such a NR accommodation platform operator and is nevertheless charged the GST/HST on the supply of short-term accommodation, the business would be able to request a refund of the tax from the NR accommodation platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of short-term accommodation in Canada to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.