Non-resident GST/HST Registration, Collection & E-Commerce
The CBC recently reported that the Federal Government is considering changing the GST/HST rules in order to make non-residents, such as Netflix, charge GST/HST on e-commerce provided to Canadians. If changes are made, they have the potential to radically impact when non-residents are required to register and charge GST/HST.
Currently, services that are wholly performed outside Canada are considered “made” outside Canada and are not subject to GST/HST to begin with. Further, non-residents who do not have any permanent establishment in Canada are not required to register and charge GST/HST on most sales made in Canada as long as they do not carry on business in Canada. This is based on a number of factors such as place of contract and place where the profits arise. As a result, non-residents who sell to Canadians but have limited presence in Canada can remain outside the GST/HST system. Meanwhile, Canadian residents must generally register and charge GST/HST unless they are a small supplier ($30,000 or less in taxable sales in the prior four quarters). The Federal Government is growing concerned that this exclusion for non-residents may not be appropriate given how easily they can provide e-commerce to Canadians with a physical limited presence. This is generally a larger concern for non-residents who sell to consumers, since consumers cannot recover GST/HST. Sales to taxable businesses are a lesser concern as those businesses would generally be able claim input tax credits to recover GST/HST anyway.
If changes are enacted, they could sweep many more non-residents into the Canadian GST/HST net. This presents practical difficulties for companies that operate globally and that happen to have Canadian customers. They would be required to comply with the Canadian rules, including collecting the correct amount of GST/HST, filing returns and potentially posting security. This is no easy task, as Canadian actually has a number of different sales tax regimes depending on the province. For example, what rate of GST/HST (5% to 15%) applies? This can actually be a complicated question as it depends on how one characterizes the e-commerce under HST “place of supply” rules. GST/HST-registered businesses are already required to navigate these challenges and if changes are made, many more non-residents will have to as well. In the meantime, it will remain important for non-residents with Canadian sales to determine if and when they are required to register and collect GST/HST under the current rules (not to mention Quebec Sales Tax (QST) and provincial sales tax (PST)) .
Simon Thang, LL.B, LL.M (Taxation) is Toronto tax lawyer practising exclusively in the areas of sales tax (GST/HST, PST), and customs and trade. He is the principal of Thang Tax Law.