E-Commerce in Canada by Non-Residents: New GST/HST Obligations on Sale of Digital Products and Services
As of July 1, 2021, certain non-residents of Canada providing digital products (intangibles) and services to Canadian consumers could be required to register for Goods and Services Tax and Harmonized Sales Tax (GST/HST) purposes.
On November 30, 2020, the Deputy Prime Minister and Minister of Finance of Canada, the Honourable Chrystia Freeland, tabled the Fall Economic Statement 2020 which proposes to broaden the obligation to register for and collect GST/HST for certain foreign suppliers working in e-commerce.
Currently, the GST/HST system provides that only one person making taxable supplies in Canada in connection with a commercial activity or business that the person operates is required to register for and collect the GST/HST.
Additionally, a consumer or any person who acquires intangibles or taxable services in Canada outside the person’s commercial activity is required to self-assess and pay applicable GST/HST directly to the Canada Revenue Agency (CRA). Currently, the GST/HST is not collected on the purchase of intangibles or services from non-resident vendors and is not paid by consumers who do not self-assess.
Generally, the new measures proposed will require that non-resident suppliers register for and collect GST/HST when they provide digital products or services to consumers in Canada. These new rules will also apply to digital platforms that facilitate third-party sales.
With the announcement of these new measures, the federal government has put in place similar rules to those that went into effect on January 1, 2019 for the purposes of Quebec Sales Taxes (QST), which are in line with market trends, as recommended by several international jurisdictions. Download our document for an overview of the proposed measures.
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As a result of temporary stoppages in the local and global economies, many transportation companies in Quebec have experienced major difficulties. What have been the biggest challenges in this sector?
The onset of the crisis brought about a series of new challenges for trucking companies in Quebec: economic slowdowns, changes in the supply chain, and new measures for cross-border travel. The most significant issue for many trucking companies was profitability and transportation logistics. What makes a trucking company profitable is its ability to manage outbound and inbound delivery logistics.
Profitability of transportation
The transportation industry is highly dependent on the dynamics of the supply chain. Production stoppages for many companies around the world have had an impact on delivery and distribution needs. The decline in the flow of goods, caused by the global economic downturn, has affected the demand for deliveries to and from Canada.
For transportation companies, this meant that it was not uncommon to have a delivery request, but with no guarantee of a return trip with goods, which affected the profitability of a truck trip. As a result, transportation sector companies negotiated higher prices, with some of them having to increase prices by 40% in order to respond to the logistical changes caused by the pandemic.
Today, the impacts of the pandemic on the transportation and distribution sector are somewhat less pronounced in some companies since the production of several goods has resumed. In addition, the transportation sector remains an essential service in our economy.
Labour shortage
However, one of the biggest challenges affecting this sector, which was already very prevalent long before the pandemic, is the labour shortage.
This shortage of truck drivers has more devastating impacts within the sector than the pandemic. Even if companies increase wages, they are not able to meet their market demand. Across Quebec, it is projected that by 2023, there will be a labour shortage in 117 of the assessed occupations, including the transportation sector, where a large number of vacancies will need to be filled.
This labour shortage has rapidly worsened due to the pandemic as many truckers now refuse to make deliveries outside of Canada.
However, international recruitment can solve this problem. Auray Sourcing, one of our subsidiaries, offers Quebec and Canadian companies a recruiting and international mobility service to address the labour shortage issue.
Ensure the longevity of your business in times of crisis
Although transportation and distribution companies have been able to mitigate the impact of the pandemic, particularly thanks to their status as an essential service, this sector still faces significant challenges. In these times of crisis, it is essential to have a well-established plan in place to ensure your business’s sustainability.
Watch the interview with our expert on the new normal in the transportation and distribution sector.
03 Dec 2020 | Written by :
Guy Fauteux is a vice-president at Raymond Chabot Grant Thornton. Contact him today!
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Updated on September 7, 2023
Several questions arise in the case of non-residents who sell real estate in Canada.
In the past year, we have witnessed a significant increase in real estate transactions and, more specifically, transactions involving the sale of properties by non-residents of Canada.
This type of transaction is governed by specific tax rules and this article aims to demystify the role of the various stakeholders in terms of tax compliance.
Non-resident sellers’ responsibilities
Non-residents who dispose of real property located in Canada must notify the tax authorities of the disposition. This notification will enable them to obtain certificates of compliance attesting that everything is in order from a tax perspective.
The notification forms T2062 (federal) and TP 1097 (Québec) are used to determine the capital gain on the sale of the property and the corresponding tax instalment to be paid to the tax authorities to obtain the certificates of compliance. The tax instalment is generally 37.875% of the capital gain for property located in Québec.
Note, however, that the tax instalment to be paid will be higher in the case of a rental property for which capital cost allowance has been claimed in the past and the non-resident seller will also have to file federal Form T2062A.
Non-resident sellers may send this notice before the planned date of sale based on an intent to purchase (future disposition) and no later than 10 days after the signing of the deed of sale (actual disposition).
Non-resident sellers who do not meet this legal requirement may be subject to a penalty of up to $5,000 ($2,500 at the federal level and $2,500 in Québec).
Note: Non-resident sellers are required to file an income tax return by April 30 of the year following the year in which the sale took place to report the capital gain and calculate the actual tax on the capital gain according to the progressive tax table for individuals. If the actual tax is less than the installment paid at the time of the transaction, they can claim a refund for the difference.
Buyers’ responsibilities
The buyer guarantees payment of the capital gains tax instalment. If the seller does not obtain the certificates of compliance prior to the sale, the buyer will be responsible for withholding an amount corresponding to 37.875% of the sale price at the time of signing the sales contract. This amount must be paid to the tax authorities, on behalf of the non-resident seller, within 30 days following the end of the month in which the property is acquired. A buyer who fails to do so becomes personally liable to pay the tax resulting from the transaction. The withholding tax amounts to 80% (50% at the federal level and 30% in Québec) if the property is a rental property.
Central role of the notary and tax advisor
The notary who represents the buyer in the transaction and the tax specialist who is mandated by the seller play a central role in this process.
It is the notary’s professional responsibility to ensure that buyers fulfill their withholding tax obligations and to advise sellers of their responsibility to file applications for certificates of compliance.
The tax advisor explains the importance for the non-resident seller of filing applications for certificates of compliance, which will reduce withholding tax on the proceeds of sale and avoid significant penalties for failure to file the prescribed forms. The tax specialist also assists the non-resident seller in preparing the applications and calculating the capital gain and taxes to be paid.
In conclusion, in real estate sales transactions involving non-resident sellers, the notary works with the sellers’ tax advisor to ensure compliance with the specific tax requirements for this type of transaction.
Our team of international tax experts offers personalized assistance based on the specifics of each transaction. Contact us to speak with one of our specialists.
02 Dec 2020 | Written by :
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The pandemic triggered major changes in the way manufacturers manage their operations. What are the key issues?
Manufacturing is an important driver of Quebec’s economy. In 2019, this sector’s gross domestic product (GDP) reached $50 billion, accounting for 14% of the province’s total GDP and 89% of export values.
It was also one of the largest sources of jobs with 433,000 employees—that’s 11.7% of all workers in the province and 28% of all Canadian manufacturing positions. And since these workers’ weekly earnings are 10% higher than the Quebec average, manufacturing jobs are considered quality positions that keep the wheels of the province’s economy turning.
COVID-19 and its impacts on manufacturing
When the pandemic struck last spring, it resulted in serious repercussions on manufacturers around the world.
In Quebec, businesses were forced to halt their operations or slow them considerably during the first wave. This led to a 33% reduction in global exports and the loss of some 44,000 jobs between February and July 2020.
Not all industries within the manufacturing sector were affected equally, however. Each was plagued with its own set of issues.
While some companies were forced to shut down completely, others faced reduced production capacities, supply shortages, import/export bottlenecks due to border closures, and other constraints. The situation was particularly bad for manufacturers who rely on international trade or hard-hit industries like air travel, tourism and entertainment.
In contrast, companies that make essential products saw demand skyrocket and had to accelerate production despite being short on workers and supplies, and the need to navigate strict new health and safety protocols.
Understanding issues before taking action
These new challenges affected production lines in more ways than one.
Supply disruptions and domino effect
When China closed its borders to stop the spread of the virus, it triggered a domino effect across global supply chains. Manufacturing businesses were the first to feel the pinch. For example, many had to contend with a lack of raw materials and seek out new suppliers.
Interestingly, this also had a positive effect, as it raised questions about how we can create more reliable supply chains for the future.
The situation also highlighted the need for manufacturers to strengthen their relationships with suppliers and diversify their partnerships, leading to interesting debates on self-sufficiency and the Buy Local movement.
Operational resilience
Managing a company involves juggling multiple variables, such as sales volumes, personnel availability, operational inputs, machine capacity, infrastructure quality, technology potential, etc. Each of these variables has an impact on your ability to achieve your targets.
In order to remain operational during the crisis, companies feeling the squeeze had to analyze their processes to determine which ones were at risk and identify potential solutions to minimize the damage.
Ensuring operational resilience depends on a company’s ability to adapt and strike a balance between dynamic production planning, technology optimization and costing. Implementing these actions can help you control costs and improve operations.
IT data security
Since the beginning of the pandemic, there has been a spike in phishing, ransomware and other cyberattacks on businesses of all sizes, to the point where cybersecurity has become a major concern for all organizations.
And since remote work arrangements are now widespread in certain industries and for certain types of jobs, these types of scams are only expected to become more frequent. In order to protect themselves and their data from cybercriminals, manufacturers need to invest in IT security. With the right solutions, they can keep threats at bay and minimize the impact of breaches.
Improving efficiency through digital transformation
The pandemic has accentuated the need for digital transformation. New technologies are essential to keep businesses viable with competitive production capacities that meet the needs of today and tomorrow.
We’ve already seen that the companies that started their digital transformation before the pandemic have been able to adapt better, thanks to process automation, the implementation of remote controls, improved data analysis and the use of artificial intelligence solutions. They’ve been able to remain efficient, achieve better output and take advantage of the situation to set themselves apart from the competition.
Workforce health and safety
Your workforce is your greatest asset. To remain engaged and productive, employees need to feel safe in the workplace. This means having a suitable physical environment and an employer that cares about their physical and mental health.
The pandemic has been hard on workers in the manufacturing industry. Some have seen their workplaces closed while others faced layoffs, reorganized work environments, new health and safety protocols, teleworking and uncertainty about the future. Not to mention the disease that may result from the virus itself.
Companies are rightfully concerned about employee retention and wellbeing. This raises several questions for managers. In this context, it’s important to plan effective and regular communications with employees. You want to keep them informed of any changes and provide them with reassurance.
Cash management
Cash management has always been a major concern for manufacturing companies, even before the pandemic. But in the past several months, most companies have experienced a significant drop in revenue, which is affecting their working capital.
Businesses need capital to meet their financial obligations, such as payroll, accounts payable, loan repayments and business investments. Carefully assessing the situation is critical for making informed decisions, protecting liquidity and limiting financial impacts over the short, medium and long terms.
Preparing for the new normal
Recent events have turned things upside down and our society is changing. Manufacturers have demonstrated resilience in adapting to the new normal and we’re already seeing evidence that the challenge will leave permanent marks on our ecosystem.
Certain trends observed during the pandemic have increased. Others have emerged and look like they’re here to stay, such as taking a more preventive approach to risk management, shortening supply chains, and striking a balance between buying local and complying with the terms of free trade agreements.
16 Nov 2020 | Written by :
Ghyslain Cadieux is expert in managment consulting at Raymond Chabot Grant Thornton. Contact him...
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