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.
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.
However, one of the biggest challenges affecting this sector, which was already very prevalent long before the pandemic, is the labour shortage.
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.
Several questions arise in the case of non-residents who sell real estate in Canada.
In recent months, 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 (Quebec) 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 Quebec.
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 Quebec).
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.
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 Quebec) 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.
When public gatherings were banned, the lights went dark on the entertainment and culture industry. Many companies suddenly found themselves facing serious financial troubles and an uncertain future.
Like many economic sectors in Quebec, the entertainment and culture industry has had to reinvent itself in recent months and find creative ways to reopen. Even though the industry has always had to contend with changing conditions, this is the first time it has had to close its doors on a global scale.
And yet, demand for content has increased. People locked down at home have taken their social activities online. Television viewership and online gaming consumption has spiked. The crisis has highlighted the importance of culture in social wellbeing and that’s why it needs to play a major role in the economic recovery.
Cinemas, theatres, museums, festivals, and television and movie producers—none of these businesses are able to operate as usual due to physical distancing directives. That’s why so many are relying heavily on assistance programs.
Nearly $500 million has been granted to support this major industry in Quebec. Bolstered by funding, organizations can think about how to survive and thrive in this new reality. Some of this funding comes from government programs managed by groups like the Canada Media Fund and the Société de développement des entreprises culturelles. With all the uncertainty surrounding the public health crisis, businesses need to keep up with new assistance programs and how these financial support measures can help them transform their offer.
Learning to adapt
In Quebec, consumers have serious reservations about heading back to live performances or in-person exhibits. In fact, most say they wouldn’t attend a festival or visit a museum in the near future, even if these options were to reopen. As a result, organizations are having to find creative ways to stay alive, connect with audiences and generate cash inflows.
One example is Théâtre La Licorne, a theatre company that sought new ways of keeping their customer base satisfied and entertained during these challenging times. With live performances out of the question, they decided to offer their customers tickets to webcasts of their performances.
When the plug was pulled on festivals, tent and public sanitation providers like Chapiteaux Classic and Groupe Star Suites shifted their offer to hospitals. More specifically, they provided planning assistance and equipment for setting up COVID-19 screening centres.
With so much of the population hunkering down at home, the already-popular online gaming industry saw their subscriptions soar. Since online games allow players to interact with friends and family as well as strangers, they give people a sense of accomplishment and connection through real-time communication.
After realizing just how effective games can be for building relationships and a sense of community, some gaming companies decided to fast-track production of key products to get them out faster and capitalize on growing consumer demand.
In the United States, one-third of all gaming customers are first-time subscribers. With schools and offices closed, more and more people are playing video games. For video game developers and publishers, this is the perfect time to attract new players.
Continuing to innovate and manage the crisis
The entertainment and culture is in the midst of a massive transformation, a process fraught with difficulties. To set the stage for success, each project needs to be approached with rigorous and innovative management. This is more important than ever.
In this industry, many companies plan projects at least a year in advance, a feat that’s next to impossible in the current crisis. You need careful cash management and a solid financial plan for each of your projects; your organization’s future depends on it.
Our team is well-known for its broad range of experience working with cultural organizations and television and film companies. We’re knowledgeable about the various assistance programs available, as well as the latest developments and financing and taxation affecting the culture and entertainment industry.
This article was written by Alain Lacasse , CPA, CA, assurance partner.