Canada requires non-resident vendors and marketplaces to collect GST/HST as of July 1
For the most part, Canada hasn’t required non-resident vendors to collect and remit Goods and Services Tax (GST) or Harmonized Sales Tax (HST). That changed as of July 1, 2021. Non-resident vendors whose annual sales of taxable goods in Canada exceed $30,000 CAD may now need to register for GST/HST.
The GST/HST is a broad-based consumption tax intended to apply to most goods and services consumed in Canada, but it hasn’t kept up with the times. Although Canadian vendors must register then collect and remit GST/HST, until now, non-resident vendors couldn’t be compelled to do the same unless they carry on business in Canada (i.e., conduct the business activity in question regularly or continually).
Of course, the internet now enables non-resident vendors to easily solicit sales from Canadian consumers without “carrying on business” in Canada. This, according to the government, is challenging “the effectiveness and fairness of the GST/HST system.”
To make the system more equitable, the government will now:
- Tax cross-border sales of digital products and cross-border services
- Tax goods sold by non-resident vendors that are supplied through fulfillment warehouses located in Canada
- Tax short-term accommodation sold through online platforms
Note: The new requirements detailed below apply only to non-resident vendors and marketplace facilitators who aren’t registered for the GST/HST under the normal GST/HST regime, aren’t carrying on business in Canada, and whose sales to consumers in Canada exceed $30,000 CAD over any 12-month period (beginning on or after July 1, 2021).
Tax non-resident sales of digital products and services
Quebec and Saskatchewan have for some time required certain non-resident vendors to register then collect and remit their local sales tax on certain digital services sold to consumers in those provinces. As of July 1, 2021, qualifying non-resident vendors and digital platform operators (aka, marketplace facilitators) whose sales of digital products and services to consumers in Canada exceed the $30,000 CAD threshold need to register then collect and remit applicable GST/HST to the Canada Revenue Agency (CRA) as well.
Calculating the threshold for cross-border digital products and services
For non-resident vendors, the threshold for cross-border sales of digital products and services is based on total revenues during a 12-month period from specified supplies — not including zero-rated supplies — made to specified Canadian residents. Sales made through a registered distribution platform operation (aka, marketplace) do not count toward a non-resident vendor’s $30,000 CAD threshold; they count toward the platform’s threshold.
For sales made through a digital distribution platform, the threshold is based on total revenues during a 12-month period from:
- Specified supplies — not including zero-rated supplies — as a non-resident supplier to specified Canadian recipients (aka, the marketplace’s direct sales)
- Specified supplies — not including zero-rated supplies — of non-resident vendors to specified Canadian recipients (aka, facilitated or third-party sales), except supplies by non-resident vendors who are registered under the normal GST/HST regime
Non-resident vendors and digital platform operators meeting the threshold are required to collect and remit GST/HST on business-to-consumer (B2C) sales only, not business-to-business (B2B) sales. Find additional information here.
Tax goods supplied through fulfillment warehouses located in Canada
Another change effective July 1, 2021, is the application of GST/HST to most taxable sales of goods occurring through distribution platforms — those by resident and non-resident vendors.
Previously, although applicable duties and taxes were levied at the border on the value of the goods upon import, GST/HST wasn’t consistently charged on the final price paid for goods subsequently sold to Canadians through Canadian-based distribution platforms or fulfillment warehouses. According to the CRA, “This means that the difference between the value at the time of importation and the final price paid escapes the GST/HST.”
Although such goods are in Canada at the time of sale, neither the non-resident vendor nor distribution platform operator was required to collect or remit GST/HST prior to July 1, 2021: The non-resident third-party vendor generally wasn’t considered to be “carrying on business” in Canada, and the distribution platform operator wasn’t considered to be “the supplier of the goods.” This put resident vendors at a competitive disadvantage.
To level the playing field, both resident and non-resident distribution platform operators whose qualifying sales into Canada exceed or are expected to exceed the $30,000 CAD threshold are now liable for GST/HST on sales of goods facilitated on behalf of a non-registered vendor to consumers in Canada, whether shipped from a fulfillment warehouse or otherwise. The tax is due on the final sale price, excluding service fees.
The new collection requirement applies to non-resident vendors and distribution platform operators who aren’t registered for GST/HST under the normal GST/HST regime, aren’t carrying on business in Canada, and who sell or facilitate taxable goods delivered or made available to purchasers in Canada that are either:
- Located in Canada (e.g., in a fulfillment warehouse), or
- Shipped from a place in Canada to a purchaser in Canada
Unregistered non-resident vendors who don’t carry on business in Canada but supply qualifying goods in Canada to consumers through a distribution platform operator aren’t required to register for GST/HST under this measure. The platform operator is responsible for GST/HST on those supplies. However, non-resident vendors with goods in Canada (in fulfillment houses or elsewhere) whose total qualifying sales to purchasers in the country exceed the $30,000 CAD threshold must register and collect and remit GST/HST on their direct sales to Canadian consumers.
Among other requirements, fulfillment businesses need to confirm the registration status of all vendors as well as maintain records of non-resident clients and goods stored on behalf of non-resident clients.
Calculating the threshold for qualifying goods
The threshold for qualifying goods is slightly different than the threshold for digital goods and services. The threshold for goods is based on total revenues during a 12-month period from:
Supplies of qualifying goods as a non-resident vendor made to specified Canadian residents, excluding those facilitated by a registered distribution platform operator that are deemed to have been made by that operator
Supplies of qualifying goods as a distribution platform operator made to specified Canadian residents, including facilitated supplies of non-registered vendors
Any business exceeding the $30,000 CAD threshold as of July 1, 2021, is required to register for GST/HST on that date, and to apply for registration by that date. Any business not meeting the $30,000 CAD threshold as of July 1, 2021, isn’t required to register as of July 1. CRA recommends such businesses “regularly recalculate your threshold amount to determine whether it is more than $30,000 CAD in a 12-month period, so they can register for the GST/HST if necessary. Find additional information here.
Tax short-term accommodation sold through online platforms
GST/HST now also applies to marketplace sales of short-term accommodations in Canada (i.e., sales facilitated through a digital accommodation platform).
GST/HST generally applies to short-term accommodations in Canada, but previously, the platform wasn’t required to collect and remit it. Property owners (or responsible persons) had to register for GST/HST only if they make more than $30,000 CAD in taxable sales (including but not limited to sales of short-term accommodation made through an online platform) in Canada. As a result, the tax on these transactions has often gone uncollected.
As of July 1, 2021, property owners (or responsible persons) that are registered for GST/HST are liable for GST/HST due on their short-term rentals. If the property owner or responsible party isn’t registered for GST/HST, the accommodation platform operation becomes the deemed supplier liable for GST/HST.
As above, the tax obligation would apply to property owners, responsible parties, or accommodation platform operations that make or facilitate (or expect) $30,000 CAD in taxable supplies of short-term accommodation in Canada over a 12-month period.
Calculating the threshold for short-term accommodation
The threshold is based on all revenues from:
- Taxable supplies of short-term accommodation made in Canada through an accommodation platform during the 12-month period; applies to suppliers not registered under the normal GST/HST to recipients not registered under the normal GST/HST
- Taxable supplies of services made during the period “to persons who aren’t registered under the normal GST/HST in connection with supplies of short-term accommodation in Canada that are made to them,” and for which the platform charges a booking fee, administration fee, or other similar charge
Suppliers exceeding the $30,000 CAD threshold on or after July 1, 2021, must register for the normal GST/HST on that date, and apply for registration by that date. Accommodation platform operators must also register for the GST/HST — either under the simplified GST/HST regime or the normal GST/HST regime, depending on the circumstances. Find additional information here.
The simplified GST/HST regime
To facilitate compliance for non-resident sellers, Canada has created a simplified GST/HST registration and remittance process for qualifying non-resident vendors and distribution platform operators that aren’t carrying on business in Canada.
In addition to providing simplified online registration and remittances, the new regime:
- Bases tax on the consumer’s usual place of residence in Canada (with certain exceptions)
- Precludes non-resident businesses from claiming input tax credits
- Precludes non-resident businesses from collecting and remitting the tax on B2B supplies
- Sets a registration threshold ($30,000 CAD)
Thus, the simplified GST/HST regime is notably different from the normal GST/HST regime. Additional details can be found in this supplementary information from the Canadian government.
Lessons from South Dakota v. Wayfair, Inc.
All this should be familiar to U.S. readers.
Until the Supreme Court of the United States issued the groundbreaking decision in South Dakota v. Wayfair, Inc. (June 2018), states couldn’t impose a sales tax collection obligation on businesses with no physical presence the state — the equivalent of a non-resident vendor in Canada.
After the Wayfair decision, states quickly adopted economic nexus laws requiring out-of-state sellers with a certain amount of sales activity in the state to collect and remit sales tax. States then started requiring marketplace facilitators to collect and remit the tax due on third-party sales, whether the individual seller has a physical presence in the state or not. As of June 30, 2021, every state with a general sales tax has enacted economic nexus and marketplace facilitator laws, and Missouri is the only state not yet enforcing them.
Many Canadian businesses have been impacted by economic nexus and marketplace facilitator laws in the U.S. Effective July 1, 2021, many U.S. businesses that sell to consumers in Canada are facing new registration, collection, and remittance requirements themselves. Companies selling affected digital products or services into British Columbia, Quebec, and Saskatchewan could be required to register and remit to four different tax authorities.
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