As of July 1, 2021, eCommerce businesses who operate in Canada are subject to new tax rules. The goal of the new regulations is to make competition between Canadian and non-Canadian businesses fairer, and to improve tax collection in the digital economy. Marketplaces will also be liable for taxes on sales they facilitate. Similar reforms are underway in the EU and the UK, and result from OECD’s recommendations on the taxation of online marketplaces and businesses.
In this article, we’ll look at what the new rules will mean for eCommerce businesses, and how to adapt to them.
Prior to July 1, 2021, foreign eCommerce businesses didn’t need to register for GST/HST (Goods and Services Tax and Harmonized Sales Tax) when selling to Canadian consumers. GST/HST are indirect sales taxes that are very similar to VAT.
Now, non-resident companies will need to charge GST/HST for all B2C supplies to Canadian customers.
To ease the administrative and tax burden on small companies, the Canadian government has established a GST/HST exemption threshold of CAD $30,000. This is the maximum turnover over four consecutive quarters (i.e. a 12-month rolling period), above which companies will need to start charging and remitting GST/HST.
Besides that, online marketplaces that facilitate sales to Canadian customers will need to collect GST/HST on sales of supplies that are stored in Canada at the time of sale, and on sales of digital goods and services. Again, this is similar to the reforms in the EU and the UK, which aim to facilitate tax collection and get better visibility into the operations of online marketplaces, regarding taxes. Individual sellers who use their own website to market goods or services to Canadian customers will need to charge and remit GST/HST.
Businesses who provide short-term accommodation in Canada via an online platform will also need to charge GST/HST.
Who’s affected by the new GST/HST rules?
Foreign businesses who sell to Canadian customers are affected if they sell taxable goods or services to Canadian B2C customers. This also includes digital goods and services. Online marketplaces will be liable for GST/HST for the sales they facilitate, if the gooda are stored in Canadian warehouses at the time of sale.
Short-term accommodation in Canada will also be subject to GST/HST, if it’s offered via an online marketplace or platform (which will likely be liable for the collection and remittance of the tax).
How do you register for GST/HST?
To pay GST/HST, businesses will need to register for GST/HST first.
The Canadian government has set up a simplified registration regime to assist businesses in making the switch. The simplified regime applies only to businesses who sell digital products or services and who provide short-term accommodation via an online platform. Businesses selling other taxable goods will need to complete the normal GST/HST registration. Registrations for both are now open.
After you exceed the CAD $30,000 threshold (for your total turnover over four consecutive quarters), you’ll need to register for GST/HST within 29 days.