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.
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.
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