Digital Goods & Services – Tax Implications

A lot of non-resident vendors try to not carry out business in Canada because of they need to register and remit Canadian Value Added Tax (VAT), which we know it as GST, HST, PST, or QST.

With the ever-growing use of digital goods, such as Apple Music, Amazon, Netflix and even Airbnb, these companies are deemed to not carry-on business in Canada even though Canadians benefit from their services or goods. This occurs because there is no physical location or a Canadian Office. This results in these digital companies not needing to register and remit GST/HST.

When a non-resident vendor does not have to pay VAT, this responsibility lies on the consumer. The consumer is supposed to assess and then pay the applicable tax themselves. Very few consumers know this, therefore they do not get paid. The CRA will also not come after a taxpayer for this because the cost is greater than the revenue it will generate.

Here’s the kicker, on November 30th, 2020, the Liberal Government revealed a proposal that even though a vendor of digital goods and services does not have a physical location or Canadian office, the proposal will have the non-resident vendor be taxed on their supplies in Canada.

This means that all non-resident vendors will be required to register and remit GST/HST on any digital goods and services. This proposal will be like our current system, i.e., an individual who is self-employed. Should the non-resident vendor exceed the $30,000 threshold than it will be required to register.

Note: GST/HST will ONLY be applied to consumer sales, not businesses. This will be defined based on: home address, billing address, IP Address, banking information and subscriber identification.

Non-resident vendors will also not be allowed to claim Input Tax Credits (ITC’s). If they would like to, they will have to register using the regular GST/HST system.

This is general comment, and you should contact Tax Partners for any questions by sending an email to info@taxpartners.ca or (905) 836-8755.

 

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