2022 Taxes On Online Purchases In Canada

January 18, 2022 Andrew AdolphDST,GST

The digital economy is growing faster than ever. But recent changes in Canadian sales tax legislation mean sellers outside Canada must collect Canada’s sales tax on sales to consumers in Canada. What do these taxes on online purchases in Canada mean for you? Keep reading to learn more.

What You Need To Know About Taxes On Online Purchases In Canada

Thanks to social media, streaming services, and online selling platforms, the digital economy is on an unstoppable growth streak.

According to Statistica, e-commerce retail trade sales reached nearly 18.5 billion CAD in 2019, and about 28.1 million Canadians bought something online. Furthermore, experts predict that online sales revenue will pass 33 billion USD by 2024, up 25.4 billion in 2019.

Many attribute this boom to the growing remote workforce, which has benefited from various digital services ranging from Netflix and Spotify to Amazon Prime. Up until now, these services from global, non-resident corporations have avoided having to charge sales tax to their Canadian consumers.

However, non-resident companies providing digital products and services without a permanent location in any country have sparked tax policy concerns. In addition, controversy over unfair tax advantages of global competition against Canadian-based businesses with similar services has also grown.

As a result, Ottawa and the provinces stand firm regarding the millions in tax revenues lost on services provided by these corporations. This culminated in the passing of new taxes on online purchases in Canada.

Updated GST/HST Rules Vs. DST

Canada did not have legislation in place to impose value-added tax on these online goods and services until July 2021. Many people assumed these new regulations would only affect multinational behemoths in the digital landscape. However, these rules also apply to small and medium enterprises.

Simplified GST/HST Process

Before July 2021, the CRA didn’t require GST/HST registration for non-resident vendors without a physical presence in Canada (with some exceptions). This meant their digital goods and services to Canadian consumers were not subject to GST/HST.

To encourage non-resident sellers to comply, Canada created a simplified GST/HST registration and remittance process for qualifying non-resident vendors and distribution platform operators that don’t have a physical presence in Canada.

Apart from its simplified GST/HST process, the new system:

• Determines tax on the consumer’s usual residence in Canada (with certain exceptions).
• Prevents non-resident businesses other than some online retailers from claiming input tax credits.
• Prevents non-resident businesses from collecting and remitting the tax on B2B goods and services.
• Sets a registration threshold ($30,000 CAD).

The simplified GST/HST regime is remarkably different from the regular GST/HST regime. Additionally, non-participating provinces (B.C., Manitoba, Saskatchewan, and Quebec) have their own separate rules. Their relatively new rules extend to entities operating in Canada but from different provinces.

Place of Supply Rules

The GST/HST rate would be determined by where the transaction is deemed to have occurred.

Three Areas of Scope

The new GST/HST measure relates to:

• Cross-border digital products and cross-border services;
• Goods supplied through fulfillment warehouses in Canada; and
• Platform-based short-term accommodation

So What Do The New Taxes On Online Purchases Mean For Vendors?

Whether you own a domestic or foreign-based business, you should thoroughly review these new Federal and Provincial tax measures to understand their impact. Doing so can help you avoid costly, lengthy disputes in the future.

But what if something goes overlooked? Unless you’re a GST specialist, it could be a tedious process to find the time to familiarize the new tax measures.

Not to worry – the CRA has implemented a 12-month grace period until June 2022. During this period, affected businesses and platforms must deliver tangible steps to comply with their new obligations.

As a former CRA auditor with over 25 years of experience, I can help you face your tax problems head-on. Call 604-204-6173 to book a free consultation. We can talk about your liability regarding taxes on online purchases in Canada and make the best plan for you.
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Sources:

• Ball, B. (2021, February 25). Canada’s digital services tax: Detailed proposals raise concerns. CPA Canada. Retrieved December 10, 2021, from https://www.cpacanada.ca/en/business-and-accounting-resources/taxation/blog/2021/june/digital-services-tax-details-concerns
• Cole, G. (2021, July 19). Canada requires non-resident vendors and marketplaces to collect GST/HST as of July 1. Avalara. Retrieved December 10, 2021, from https://www.avalara.com/blog/en/north-america/2021/07/canada-requires-non-resident-vendors-and-marketplaces-to-collect-gst-as-of-july-1.html
• Plamondon, R. (2021, August 16). Canada: New Canadian Sales Tax Regime Cast On Digital Goods And Services Catches Non-resident Businesses, Both Big And Small. Mondaq. Retrieved December 10, 2021, from https://www.mondaq.com/canada/tax-authorities/1102120/new-canadian-sales-tax-regime-cast-on-digital-goods-and-services-catches-non-resident-businesses-both-big-and-small

Andrew Adolph

Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.