The Netflix Tax is Finally Coming: GST/HST Tax Rules for E-Commerce
Thang Tax Law’s Shahrukh Khowaja and Simon Thang wrote an article featured in the Canadian Tax Foundation’s newsletter, Canadian Tax Focus. The article titled “Canada’s Multiple, Uncoordinated Netflix Taxes” discusses important new rules for Goods and Services Tax/Harmonized Sales Tax (GST/HST) and e-commerce that will affect non-residents selling to Canadians starting July 1, 2021.
Upcoming Rule Changes
In summary, non-residents selling to Canada will have to register for GST/HST as of July 1, 2021 simply if they sell services or intangibles to Canadian consumers worth more than $30,000 over four calendar quarters. Non-residents will be required to register under a new “simplified” registration system. The rules target large, well-known e-commerce businesses such as Netflix and Spotify, but will cover include most non-residents who cross the sales threshold above. This represents a major change from the current rules.
Under the current rules, non-residents who do not carry on business in Canada are generally not required to register (similar to a nexus requirement under US state sales and use tax rules, prior to the Wayfair decision of the US Supreme Court, discussed here). Many non-resident e-commerce businesses have relied on this rule to stay unregistered. This is no longer valid starting July 1, 2021.
Non-residents vendors will have to determine whether they should register under the new regime, or under the existing GST/HST rules, as there are pros and cons to both.
It is important to note that the new rules would also make online platform operators directly liable for certain sales by non-registered vendors through their platform. It may no longer be sufficient for platform operators to simply disavow any sales tax obligations for sales made through their platforms. Therefore, platform operators will need to review their responsibilities and make changes to their systems. These rules would apply both to services/intangibles, and to goods shipped from within Canada.
The Canadian sales tax landscape has become significantly more complicated for non-residents in the past two years. In addition to the GST/HST proposals above, non-residents will also need to navigate relatively recent e-commerce and/or online marketplace/platform rules for provincial sales taxes in Quebec, Saskatchewan and British Columbia. For more information regarding these changes, please read our previous posts for British Columbia and Quebec.
Disclaimer: This article is published for educational purposes only, it does not provide any legal advice. For more information and queries about how these proposals may affect your business or regarding general PST registration requirements, please contact us for more information and advice.
Thang Tax Law is a Toronto-based boutique Canadian Tax Law firm specializing in the areas of sales tax (GST/HST, PST), and customs and trade. Our goal is to give you the best solution for your unique situation. We provide smart, reliable advice and effective representation. We have helped many businesses and individuals, both within the country and abroad, in effectively strategizing their businesses and in disputes with the Canada Revenue Agency and other provincial authorities.