Canada Tax: Taxes for non-resident suppliers of Goods and Digital Services
Canada is the second largest marketplace in North America. With a 2020 projected revenue of US$ 29,848m coming from eCommerce and an estimated growth expected to reach US$ 38,776m by 2024, online sellers and digital services providers should consider entering the Canadian market. GST (goods and services tax is currently being imposed on most goods and services)
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What is the difference between Canada GST and HST?
The Canada goods and services tax (GST) is a tax that applies to most supplies of goods and services made in Canada. The GST also applies to many supplies of real property (for example, land, buildings and interests in such property) and intangible personal property such as trademarks, rights to use a patent, and digitized products downloaded from the internet and paid for individually.
The participating provinces harmonized their provincial sales tax with the GST to implement the harmonized sales tax (HST) in those provinces. Generally, the HST applies to the same base of property (for example, goods) and services as the GST. In some participating provinces, there are point-of-sale rebates equivalent to the provincial part of the HST on certain designated items. For more information, see Point-of-sale rebates.
GST/HST registrants who make taxable supplies (other than zero-rated supplies) in the participating provinces collect tax at the applicable HST rate. GST/HST registrants collect tax at the 5% GST rate on taxable supplies they make in the rest of Canada (other than zero-rated supplies). Special rules apply for determining the place of supply. For more information, see Place of supply rules.
Registering for GST/HST in Canada
Non-residents online sellers whose sales are below CA$30,000 are classified as small suppliers, so every new online seller in Canada will fall in this category and won’t charge GST/HST to customers.
The obligation to register will arise when sales reach the threshold of CA$30,000 in a single calendar quarter, therefore the seller will not be consider a small supplier anymore and will have to charge GST/HST to all supplies made to Canadian customers since the moment the threshold was exceeded.
Do I charge GST, PST, or HST?
As a registered business in Canada, you will either charge the Goods and Services Tax (GST) and Provincial Sales Tax (PST), or the Harmonised Sales Tax (HST), depending on where the supply is made.
- HST provinces: New Brunswick, Newfoundland & Labrador, Nova Scotia, Ontario, Prince Edward Island.
- GST + PST provinces: British Columbia, Manitoba, Northwest Territories, Quebec, Saskatchewan, Yukon.
Once registered, GST/HST must be charged. The applicable rates will vary from province to province and can be from 5% up to 15%
Input Tax Credits
As a registrant, you recover the GST/HST paid or payable on your purchases and expenses related to your commercial activities by claiming an input tax credit (ITC). For Online sellers, this means that if you are using Amazon FBA for example or using warehouses in Canada, the cost derived from this services can be deducted from GST/HST creating tax benefits.
Security deposit for Non-resident
Generally, you have to provide a security deposit if you apply to be registered for the GST/HST. The amount can be from CA$5,000 up to CA$1m depending on the estimated (or actual) net tax for the next (or last) 12-month period.
With so many types of taxes it is important to have a good tax management and GVC can offer a specialized GST/HST compliance service so Online sellers don’t have to deal with tax regulations across Canada.
New regulations when storing goods in Canadian Fulfilment Warehouses
GST/HST will be applied to all sales to Canadians of goods that are located in Canadian fulfillment warehouses, effective July 1, 2021. Under this proposal, the GST/HST will be required to be collected and remitted by either the foreign-based vendor or the digital platform that facilitates the sale.
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CETA
CETA or Comprehensive Economic and Trade Agreement, is a trade agreement between the EU, UK and Canada which entered into force on September 2017. CETA opens up Canada’s goods, services and public procurement markets. In addition, it cuts tariffs and makes it easier to export goods and services, benefitting people and businesses in the EU, UK and Canada.
For European companies, this agreement abolishes over 98% of Canadian customs duties, creating substantial saving opportunities and making exporters more competitive.
Digital Services in Canada
Canadian GST/HST applies at a rate of 7% GST or 15% HST to taxable supplies of intangible personal property and services made in Canada, including such supplies made by electronic means, BUT only applies if the supplies are made through a permanent establishment in Canada.
This however will soon change. From 1 July 2021 the collection of the GST/HST non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada will be required to register for the GST/HST and to collect and remit the tax to the CRA on their taxable supplies to Canadian consumers. In many instances, digital products or services may also be supplied to consumers in Canada through digital platforms that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). To ensure that the GST/HST applies equally to these supplies, it is also proposed that distribution platform operators be generally required to register for the GST/HST and to collect and remit the tax on the supplies that these platforms facilitate of digital products or services of non-resident vendors to Canadians.
To facilitate compliance with these requirements – and to be consistent with the Organisation for Economic Co-operation and Development’s recommendations on the digital economy and the actions taken by many other jurisdictions – a simplified GST/HST registration and remittance framework would be available to non-resident vendors and non-resident distribution platform operators that are not carrying on business in Canada (e.g., have no permanent establishment in Canada).
Business-to-consumer supplies only: Non-resident vendors and non-resident distribution platform operators using the simplified registration system would be required to collect and remit the GST/HST only on the supply of digital products and services made to Canadian consumers. Conversely, they would not be required to collect and remit the GST/HST on their supplies of digital products or services to businesses. For these purposes, an entity or person that is registered for the GST/HST would be considered a business and any other entity or person would be considered a consumer. Non-resident vendors and non-resident distribution platform operators would rely on the GST/HST registration number of a business as proof of its business status.
- Registration threshold: Simplified GST/HST registration would be provided for non-resident vendors and non-resident distribution platform operators making supplies of digital products or services to Canadians under the following circumstances:
For a non-resident vendor, if their total taxable supplies of digital products or services made to consumers in Canada exceed, or are expected to exceed, $30,000 over a 12-month period. In determining if they meet this threshold, a non-resident vendor would not include supplies that are facilitated by a distribution platform operator that is registered for the GST/HST (under either the normal or simplified registration system) and that is deemed to have made the supply. - For a non-resident distribution platform operator, if their total taxable supplies of digital products or services made to consumers in Canada, including the supplies of digital products or services of non-resident vendors to consumers in Canada that the operator facilitates, exceed, or are expected to exceed, $30,000 over a 12-month period.
Where a GST/HST registered business provides its GST/HST registration number and is nevertheless charged the GST/HST, the business would be able to request a refund from the non-resident vendor or non-resident distribution platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.
Coming into Force
The proposed new rules would apply to supplies of cross-border digital products or services to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.
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Provincial taxes on Digital Services
Since there are no current federal GST/HST to tax foreign suppliers of Digital Services, they are progressively been taxed by different Provinces. This is about to change with the introduction of a new federal tax on foreign digital service providers coming into force by July 2021.
So far 3 provinces are taxing non-resident suppliers of Digital Services:
- British Columbia
Introduced on July 1st, 2020, all B2C non resident suppliers of digital services are required to be registered for Provincial Sales Tax (PST) on eServices. The registration threshold is CA$ 10,000 and the applicable tax rate is 7%. - Québec
Since January 1st, 2019, all foreign suppliers of digital services to final consumers in Canada (B2C) need to register for Québec Sales Tax (QST) on eServices. When supplies exceed the registration threshold of CA$ 30,000, such supplies are taxable at a rate of 9.975%. - Saskatchewan
Also introduced on January 1st, 2019, all digital supplies by non-residents companies are subject to Provincial Sales Tax (PST) on eServices of 6%. There is no threshold for the registration, therefore since the first supply the obligation to register arises.
Registering for PST/QST
Only required when the mentioned registration threshold are exceeded in a 12-month period counting B2C transactions only. There is no requirement for Fiscal representation when registering. Be sure to contact a tax specialist who can assist you with the registration in the required Canadian provinces. GVC is experienced with Canadian registration for non-resident providers of Digital Services and can help you become tax compliant.
Filing for PST/QST
Once registered, foreign suppliers of Digital Services will be obliged to file periodic returns depending on their turnover. GVC can streamline your compliance in all Canadian’s provinces when required and it is well equipped to provide a global services so you keep one point of contact when expanding to Canada or other countries around the globe.
Federal tax on Digital Services
Under existing regulations, foreign digital businesses do not need to charge GST/HST to their sale of goods or services to local Canadians. According to the government, this creates a big disadvantage to local businesses and undercuts competition, and at the same time puts the burden on Canadian customers to remit sales tax.
To level the field, the Canadian government proposes a number of changes to current rules:
All foreign digital service or products providers (like mobile apps, online video gaming, and video and music streaming) will be required to register for, collect and remit GST/HST on their taxable sales to Canadians. The effective date of this measure will be July 1, 2021.
GST/HST & PST Rates
| Region | GST/HST RATE | PST RATE |
| Alberta | 5% GST | |
| British Columbia | 5% GST | 7% |
| Manitoba | 5% GST | |
| New Brunswick | 15% HST | |
| Newfoundland and Labrador | 15% HST | |
| Northwest Territories | 5% GST | |
| Nova Scotia | 15% HST | |
| Nunavut | 5% GST | |
| Ontario | 13% HST | |
| Prince Edward Island | 15% HST | |
| Québec | 5% GST | 9,975% |
| Saskatchewan | 5% GST | 6% |
| Yukon | 5% GST |
*The above information is only indicative. This table is updated regularly but please contact GVC in order to ensure that it is correct at the date you are using it.