Updated on May 10, 2023

Driven by the current situation, more and more businesses are turning towards e-business. What are their tax obligations?

Organizations must be aware of the impact of selling in certain territories. We’re going to review the application of commodity taxes on the sale of tangible personal property in Canada and the United States in an e-business context.

Please note that sales made to Europe could also have tax impacts in terms of European value added taxes.

Determining the tax territory

When it comes to e-business, it’s essential to determine the place of transaction, that is, the territory in which the sale is deemed to have been made, in order to know which commodity taxes are applicable. Furthermore, the rules could be different if the supply made is tangible personal property or intangible personal property. So, it’s important to properly qualify the nature of the supply made.

Supply place – Tangible personal property

Generally, a supply by way of sale of tangible personal property is deemed to be made at the place where the property is delivered or made available to the buyer.

This rule generally applies based on where legal delivery of the goods to the buyer occurs, which is determined by the terms of the applicable agreement for the sale of the goods.

In the context of e-business, where the seller handles the delivery in most cases, the applicable taxes will be determined based on the delivery address. It is therefore essential for businesses selling online to maintain a record of sales based on delivery addresses.

Transactions within Canada

With regard to interprovincial e-business, it’s important to keep in mind the different taxes applicable in each province.

First, any person carrying on a business in Canada who is not a small supplier is required to collect tax on goods and services (hereafter “GST”) on all sales carried out in Canada.

Then, according to the province in which delivery occurs, the seller needs to determine which provincial sales tax is applicable to the transaction. Please note that only the GST applies in the following provinces and territories:

• Alberta,
• Nunavut,
• Northwest Territories,
• Yukon.

Supplies made in Québec

For sales made in Québec, a business that is required to be registered for the Québec Sales Tax (hereafter “QST”) will be required to collect the GST and QST on all transactions where the property is delivered in Québec.

Provincial sales tax requirement

Some provinces have harmonized their provincial sales tax (hereafter “PST”) with the GST. As a result, these provinces have introduced the Harmonized Sales Tax (hereafter “HST”), which combines the GST and the PST. The HST applies to taxable supplies of goods made in the following provinces:

• Prince Edward Island,
• New Brunswick,
• Nova Scotia,
• Ontario,
• Newfoundland and Labrador.

As the HST is a harmonized sales tax, businesses registered for the GST are automatically registered for the HST. Therefore, businesses must collect and remit the HST when they make taxable supplies (excluding zero-rated supplies) in the abovementioned provinces.

Please note that the HST is not at a uniform rate and varies between 13% and 15% depending on the province.

PST requirement

The other Canadian provinces, British Columbia, Manitoba and Saskatchewan, still have a PST in place. It should be noted that the PST in these provinces is quite different from the GST. It is therefore important to verify whether supplies made in these provinces are subject to PST or whether they are exempt supplies.

If the supplies made in these provinces are taxable, it will then be necessary to determine whether, as a non-resident of the province, the supplier is required to register and collect PST on its supplies made in the province.

Transactions in the United States

Many Canadian businesses are now tempted to offer their products in the United States in order to expand their market through an online sales site. These companies need to be aware of and consider the various U.S. sales tax obligations that online sales may entail.

A business is required to register for and collect U.S. sales tax on its taxable sales when it has a sufficient physical presence (hereafter “Nexus”). Until recently, a Nexus was created if the business maintained a permanent or temporary physical presence in a state through a person soliciting sales (employees or independent representatives) or through the presence of property (inventory, offices, warehouses).

In June 2018, the U.S. Supreme Court in South Dakota vs Wayfair ruled that a state could also introduce the concept of an economic Nexus. Thus, this type of Nexus now requires a company with no physical presence in a state to register for state sales tax if its sales volume in the state exceeds a certain limit.

To date, all states that have a sales tax system have adopted the economic Nexus concept.

Based on these new rules, it is paramount for a non-resident business making sales in the U.S. to consider this economic Nexus concept.

A business conducting e-business must therefore track its activities in each state to ensure that it meets all of its sales tax obligations in that state.

In conclusion, while e-business growth opportunities may be attractive, it is important that the application of consumption taxes not be overlooked. Many businesses embarking on the e-business journey are unaware that they may be required to collect and remit sales taxes in the country, province or state where their customers reside. Companies must therefore be proactive and ask themselves more questions about their sales tax obligations.

Our team of specialists can help you by offering personalized assistance.

On March 22, 2022, Finance Minister Ernie L. Steeves tabled New Brunswick’s 2022-23 budget.

The estimates provided in NB Budget 2022 show that the province projects a surplus of $488 million for the 2021-22 fiscal year, compared to a $245 million deficit projected for the same fiscal year in the previous budget.

Read more

2022-2023 Québec Budget: New Funds Injected into Several Sectors and Assistance to Reduce Inflationary Pressure

The fourth and last budget of the François Legault government before the fall general elections has been wide-ranging. Health, education, tourism, culture, regional development, environment, community, almost everything can be found in this budget, which is injecting more than $3.2B to give 6.4 million adult Quebecers with a net income of $100,000 or less, a cheque of $500 to cope with inflationary pressure.

Québec’s public finances are in good shape. In 2022-2023, the budget balance will post a deficit of $6.5B once $3.9B is paid into the Generations Fund. The financial framework provides for an allowance for economic risk and other support and recovery measures of $2.5B in 2022-2023 and $1.5B per year as of 2023-2024. The government expects a balanced budget by 2027-­2028, but it should be acknowledged that this could be achieved as of 2023-2024, for accounting purposes (excluding the Generations Fund payment). Revenues could reach $138.5B in 2022-2023, with a 2.2% growth. Expenses will have risen to $136.6B in 2022-2023, with an increase of 4.8%.

In addition to providing massive support for major sectors such as health ($9B over five years), education ($2.8B over five years), tourism ($304M over six years), regional economic development, culture and the environment (including an additional $1B in investments for the new 2022­-2027 implementation plan of the 2030 Plan for a Green Economy), this budget aims to support businesses and economic growth through initiatives totalling close to $4.2B between now and 2026-2027. It includes:

• An additional $1.3B over five years to implement the new Québec Research and Innovation Strategy;
• An additional $110M over three years to renew the new Québec Life Sciences Strategy;
• $156M to help Québec businesses stimulate their investments in new technologies by extending the increase in the tax credit for investments and innovation (C3i) by one year;
• $1.5B over six years to support regional development by contributing to their prosperity, promoting the development of the forestry sector and protection of wildlife capital and by preparing the tourism sector for recovery;
• $255M over five years to continue supporting regional air transportation by fostering the establishment of accessible regional services;
• $290M over five years to bolster the integration of immigrants into the labour market;
• $627M over five years to support the growth of the bio-food sector;
• $257M over five years to support the recovery and to promote Québec’s culture and cultural sector.

Furthermore, the budget grants $2.2B in support to reinforce community action and implement measures for supporting communities. For vigorous regional economies, it’s important to acknowledge the significant contribution of community organizations as a vector for growth and social inclusion.

In order to ensure better tax fairness, the government intends to revamp its digital services offering, in particular, by launching the Revenu Québec VISION project. This project is designed to transform the provision of services to individuals and businesses by introducing a more efficient, simplified digital tax administration model. The government also plans to devote $1M every year as of 2022-2023 to fight against illegal and abusive practices in the financial market’s crypto-asset sector.

For more information on the tax measures announced in the 2022-2023 budget, please download our Tax Bulletin.