Canada Cross-Border Taxes on Digital Goods

Cross-country border tax on digital goods

Digital Market Places that encompass goods, and a wide range of services, have become the order of the day, with corporates in the field growing from strength to strength, be it e-commerce, or entertainment, regardless of their physical presence in the country where the goods are supplied, or services rendered. Canada is one of those countries which has identified the huge potential for tax revenue from the above transactions.

Tax on Digital Services from Non-Resident Vendors

In the wake of Quebec Province, Saskatchewan Province (2019), and British Columbia (2020), the Canadian Government has decided to tax supply of Digital Products/ Services rendered by non-resident vendors, to improve tax collections and create a level playing field for resident vendors rendering these services, who are required to collect and remit the tax to the Canadian Government.

Non-resident vendors supplying digital products and services to unregistered Canadian consumers were required to register themselves under Canadian GST/ HST, collect and remit the taxes to the Government from July 1, 2021, similar to the resident vendors. Guidelines are available to determine if the consumer is a Canadian resident, such as home/ billing address, bank transactions, IP address of his device, etc. Digital marketplaces, if, in addition to rendering services, sell goods located in Canada at the time of sale would also get covered under the above provision.

Threshold and Who Claims

Annual Sales threshold of $30,000 CAD and the mode of calculation of this threshold have also been prescribed for the above kind of transactions. A simplified registration and payment system for supplies made to (unregistered) consumers vide a specific online portal has been facilitated for the Non-Resident Vendors and Distribution Platform Operators, but Input Tax Credit (ITC) corresponding to business inputs is not allowable under this simplified system. However, ITC can be claimed by a non-resident vendor or non-resident distribution platform operator if the registration is in accordance with the regular GST/HST rules.

If sales are made through Third Party Distribution Platform Operators by non-registered vendors, these operators would be required to register, collect, and remit the GST/ HST. If the non-registered vendors operate through Canadian Fulfilment Warehouses or on their own websites without the use of a distribution platform, they had to register, collect, and remit the GST/ HST.

It is pertinent to note that the above provisions could result in multiple registration requirements under the tax legislation of Quebec, Saskatchewan, British Columbia, and Canada.

In case of short-term accommodations (below 30 days), supplied in Canada vide an accommodation platform, if the owner of the property is not registered (and hence not paying the taxes), it is the responsibility of the accommodation platform operator to collect and remit the GST/ HST.

Mandatory information to form a part of the invoices raised on customers registered under GST/HST and who are desirous of claiming tax credits on their inputs, include Business Identification Number, Name of the Vendor, Invoice/ Tax Payment Date, Invoice Amount, the Tax Components, Tax Rates, the Item being sold/ Service being rendered, Customer Details, etc. In case the customer is not registered, only the GST/ HST rates, Value of the product/ service, and tax amounts (shown separately) need to be mentioned.

In addition to all the above, the Canadian Government has proposals to implement a new tax on Corporations providing Digital Services in Canada @ 3% on revenue exceeding $20M CAD, effective January 1, 2022. This tax would apply on large corporates which have annual global revenues of €750 million or more. Online Market Places, Social Media, Online Advertisers, and Data Providers are categorized as Digital Services for the purpose of the above law.

The information provided in this article does not, and is not intended to constitute tax advice, instead, all information, content, and materials in this article is for general informational purpose only. The content on this posting is provided “as is;” no representations are made that the content is error-free. All liability with respect to actions taken or not taken based on the contents of this article are hereby expressly disclaimed.



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