GST/HST on Digital Products in Canada
GST/HST on Digital Products in Canada
Canada has always been a global importer and exporter of goods and services. However, with more and more digital products in the marketplace, it is important to understand the impact of GST/HST on digital products in Canada. Legislative changes occurred in 2021 that directly address the taxation of digital economy businesses. If your business has digital products, contact the experienced tax attorney at Jeremy Scott Law at 902-403-7201 to help you better understand how you can remain compliant under these new laws.
New Canadian Tax Laws for Digital Economy Businesses
The Fall Economic Statement 2020 by the Government of Canada specifically addressed digital economy businesses. The measures discussed were ultimately revised and adopted as of July 1, 2021. As of this date, any digital economy business (including digital economy operators) may have new GST/HST obligations on their digital goods and/or services.
Types of Businesses Impacted by These New Laws
Every foreign business owner should receive specific advice regarding the way these new laws may impact their digital goods and/or services. In some cases, a business may not be required to charge and collect GST/HST. In other cases, businesses may be under an obligation to charge their customers GST/HST as a ‘digital platform operator’ for supplies obtained through a digital source or platform. Some of the types of businesses that may be affected by these new laws could include the following:
International Sellers of Digital Services and Products
Foreign-based businesses, vendors, or distribution platform operators that sell taxable digital services and/or products to Canadian companies or consumers may now face GST/HST obligations. Under the previous law, non-resident persons did not need to collect or remit GST/HST if they were not considered to be carrying on business in Canada. As a result, the consumer that purchased the digital good or service was required to self-assess the tax applicable on the good or service and pay the tax directly to the CRA. In reality, consumers rarely assessed and self-remitted this tax, and many purchases of digital goods and services through digital platforms went untaxed. As a result, Canadian business that supplied digital goods and services and who were required to collect the GST/HST were at a significant financial disadvantage when compare to these non-residents suppliers. The new law essentially requires that all non-resident vendors collect and remit GST/HST if the total amount of their taxable digital goods and services sold to Canadian consumers exceeds $30,000 over a 12-month period.
Fulfillment Warehouses
Non-resident vendors and/or non-resident distribution platform operators who distribute qualifying goods that are delivered and/or made available in Canada may also face these new GST/HST obligations. Vendors involved in making supplies of “qualifying tangible personal property” and who have goods located in a fulfillment warehouses in Canada, will also need to register for and collect GST/HST.
Again, under the new rules, both resident and non-resident distribution platform operators would need to register if the total amount of their qualifying goods to Canadian purchasers exceeded $30,000 over a 12-month period of time.
Short Term Accommodation Platforms
Suppliers of short-term accommodation services (or accommodation platform operators) may also face these GST/HST obligations. Specifically, the new GST/HST laws will impact transactions that involve short-term accommodation rentals of private residential property that are made available through digital platforms. For example, whether or not GST/HST applied on an accommodation through a platform such as AirBnB depended upon whether or not the property owner was registered to collect GST/HST. Under the new rules, the platform operator will often be required to collect GST/HST on all short term stays, regardless of whether or not the owner is a GST/HST registrant.
Impact of GST/HST on Digital Products in Canada
According to the previously mentioned Fall Economic Statement, retail e-commerce in Canada rose by nearly 70% in 2020. While some of this trend may be due to the lockdown and COVID-19 global pandemic, society as a whole has moved towards consuming more digital goods and services. The tax laws of Canada proved far too antiquated to capture these digital transactions, which placed local business at a financial disadvantage when compared to foreign competitors. If your company is involved in the sale, distribution, or transfer in any way of digital goods and services in Canada (either as a domestic or foreign entity), you should consider contacting an experienced tax attorney at Jeremy Scott Law to see if you have any increased legal or financial obligations under these new laws.
More Changes in 2022
Additionally, along with these new GST/HST laws, the Canadian government is expected to implement a new tax on corporations providing digital services, effective January 1, 2022. This new proposed tax will attempt to capture revenue from digital corporations specifically regarding value-creating activities through remote digital means. This could include the collection of user data or content creation, which is not currently under or subject to the Canadian corporate tax laws. The tax landscape for Canadian businesses is ever evolving and changing, especially when it comes to those corporations that are involved in the sale or distribution of digital goods and services. Visiting with an experienced tax attorney can help ensure your business remains compliant, regardless of any new adopted laws.
Contact an Experienced Canadian Digital Sales Tax Attorney
If you are a resident or non-resident business that provides digital goods or services to Canadian residents, you may have questions regarding whether you have any new financial obligations with respect to GST/HST on digital products in Canada. If your business has digital products that are offered for sale to Canadian consumers, contact an experienced tax attorney at Jeremy Scott Law at 902-403-7201 to ensure you understand all your legal obligations.
If you found this information valuable, I encourage you to check out my other blog posts.
The Disclaimer:
Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.
A Director’s Liability For Unreported Tax – including GST/HST!
If you are a director of a company in Canada, you are already likely aware of the legal and financial challenges that businesses face, specifically related to taxes. The Canada Revenue Agency (CRA) issues assessments every year against directors to collect unreported taxes. Even if you are a director of a charity or non-profit corporation, you may still face collections as a director regarding unpaid taxes or unreported income from your company. If you are curious whether you may have director’s liability for unreported tax amounts to the CRA, consider visiting with the experienced tax attorney Jeremy Scott at Jeremy Scott Law to help you understand all of your legal options. Contact us today at 902-403-7201.
Understanding Unreported Tax (GST/HST)
Every business in Canada must report both the taxes collected and the taxes paid to the CRA in order to ensure compliance with GST/HST tax obligations. If a company does not report these amounts, or reports them incorrectly, a director may become personally liable for any GST/HST reassessments issued to the company.
Specifically, in the court case of Duque v. Canada, 2020 FCA 73, the CRA alleged that the corporation had failed to accurately report income for 2006 and 2007. As a result, the company was provided with a reassessment for tax purposes under the Income Tax Act. The corporation was then also assessed for unremitted GST/HST ‘net tax’ under the Excise Tax Act. Court records indicate that the corporation did not file a Notice of Objection to this reassessment of GST/HST. Mr. Duque, a director for the company, was then personally assessed by the CRA for the company’s tax liability resulting from the various tax reassessments. The total amount owed to the CRA included the original unremitted tax, as well as applicable interest and penalties as provided for in the tax legislation. The court found the director liable for these amounts, and he was required to pay the CRA on behalf of his company.
Examples of Corporate Tax Liabilities
Every director of a company should understand that as a director they may be held personally responsible for tax liabilities, and put in place measures to ensure that the company is properly reporting all of its tax obligations. Examples of tax liabilities for which a company director could potentially be responsible include:
These are only some examples of corporate tax liabilities that should be reported to the CRA. If you feel overwhelmed or unsure if your corporation is correctly reporting income for tax purposes, consider visiting with the experienced tax attorney at Jeremy Scott Law today.
What if You Are Not the Only Director?
Many companies have more than one director. As a result, the CRA has the legal right to assess every director of a company regarding unreported income. In most cases, the liability is assessed equitably and equally among all of the directors regarding the tax debt for unreported income. In some cases, if only one director is assessed liability for unreported income, he or she may have the legal ability to sue the other directors for their equitable portion.
Cases Where a Director is Not Officially Listed as a Director
There are some instances where a director is not officially listed on corporate documents as a director of the company. However, if the facts and circumstances point to a person running the company or in any way exhibiting control over the company, the person may still be legally recognized as a de facto director of the company. As a result, the CRA may have the legal right to pursue a de factor director for payment of tax liabilities.
Possible Defenses To Director’s Liability
There are some defenses available to directors of corporations if they discover that they have been assessed by the CRA for unreported income.
Not a Director of the Company
There are circumstances where a person has never been a director, never consented to the title and obligations of director, and never legally acted in any way that would hold themselves out to be a director of a company. As previously indicated, in these cases, the person would have to prove that they never acted in any way that would have represented the company. For example, they never signed any contracts on behalf of the company, never made any discretionary decisions related to the company, and were not listed on any of the company documents.
Resigning More Than Two Years Prior to the CRA Assessment
Simply resigning is not enough to exculpate a director from responsibility and liability regarding reporting corporate income to the CRA. Any actions (or inactions) that were taken during the time of a director’s tenure at a company could result in director liability for unreported income to the CRA.
However, if a director resigned, or stopped acting in the capacity as a director, more than two years prior, a director may have the ability to avoid liability and payment for company unreported tax. However, a director must prove that they truly resigned and that they were removed from all responsibilities and involvement with the company to effectively use this as a defense.
Due Diligence
There are narrow circumstances in which a director may be able to use the defense of due diligence. In this case, the director shows that they are not liable for the unremitted and/or unreported tax because they truly can show they exercised complete due diligence, care, and skill that a reasonably prudent person in a similar circumstance would have done. This is a challenging defense to prove.
Contact an Experienced GST/HST Tax Attorney To Learn More
If you are concerned about whether you may have personal liability to the CRA as a director, consider contacting Canadian tax lawyer Jeremy Scott to help answer all of your questions and understand all of your legal options. Contact us today at 902-403-7201.
If you found this information valuable, I encourage you to check out my other blog posts.
The Disclaimer:
Please note the content above and throughout this website is provided for general information purposes only and does not constitute legal or other professional advice or an opinion of any kind. I urge you to seek specific legal advice by contacting me (or your current legal counsel) regarding any legal issues you may face. I do not warrant or guarantee the quality, accuracy or completeness of any information found on this website and will not be held liable for anything contained in this document or any use you make of it. Finally, accessing the information on my website does not create a lawyer-client relationship.