Proposed GST/HST Rules for Digital Sales

The Federal government’s 2020 Fall Economic Statement discussed various proposed changes, a few of which were directed towards updating Canada’s GST/HST rules to reflect a growing digital economy. Currently, foreign vendors that have no physical presence in Canada typically do not have to charge the GST/HST on the digital products or services sold to Canadian consumers. However, when a Canadian vendor sells these same digital products or services, the Canadian vendor is required to charge the GST/HST. This legislative disparity results in Canadian vendors’ products or services to be more expensive than purchasing the same products from foreign digital vendors, resulting in a competitive disadvantage to Canadian vendors. Digital products and services include, but are not limited to, mobile apps as well as streaming services for music and movies. Similar situations occur where a foreign vendor sells goods that utilize fulfillment warehouses within Canada or provides accommodations through a short-term accommodation platform.

Effective July 1, 2021, new proposed GST/HST legislation requires these foreign vendors as well as digital platform operators, such as online marketplaces, that do not have a physical presence in Canada to charge GST/HST to Canadian consumers on the sale of the following:

• Digital products and services,
• Goods sold by a foreign vendor that utilize fulfillment warehouses within Canada, and
• Accommodations provided through short-term accommodation platforms.

These foreign vendors and digital platform operators will need to register and charge GST/HST if their sales to Canadian consumers exceed $30,000 CAD over any 12-month period. A simplified registration option is expected to be available where GST/HST would not have to be charged to Canadian consumers that are already registered for GST/HST. However, input tax credits for any GST/HST paid are disallowed if the simplified registration option is chosen. The simplified registration option will not be available to those who use fulfillment warehouses within Canada. Further guidance is expected to be coming from the Canada Revenue Agency at a later date regarding the simplified registration option.

These proposed GST/HST rule changes for digital sales are complex. If you have any questions regarding these proposed rule changes, please reach out to your Bateman MacKay LLP Business Advisor.