How The New DST Affects Upwork Canada
December 30, 2021 Andrew AdolphGST HST Registration,DST,GST
Effective November 2021, Upwork will collect Goods and Services Tax (GST) on fees and purchases from freelancers in Canada – except those who submit their GST/HST or QST number to Upwork.
What Is Upwork Canada?
Upwork, one of the world’s largest online talent marketplaces, connects freelancers to prospective clients and vice versa. This platform allows freelancers and clients to post jobs, find work, and collaborate on long or short-term projects.
Whether you’re a web designer, architect, copywriter, consultant, or any other skilled professional, Upwork can help connect you with clients remotely.
You can take on a project and receive payment through the platform by submitting proposals to interesting or relevant projects. Projects on Upwork known as “jobs” may vary in scope and duration.
If you’re a business owner, you can also use Upwork to hire skilled talents for specific jobs (both short- and long-term). Just post the job description and requirements on the site, and you can find freelancers that are a fit for the role.
What Is The New Canada Digital Sales Tax?
The new Canada digital sales tax is a value-added tax that applies to sellers of the digital economy. The new regime became effective on July 1, 2021, and involves three proposed GST/HST measures that apply to:
- Cross-border digital products or services (ex. sale & licensing of software, online music streaming)
- Distribution platform operators (ex. businesses facilitating supplies of goods including goods delivered or made available in Canada, such as goods located in a fulfillment warehouse), or
- Short-term accommodation platform operators (ex., facilitators of accommodations through online accommodation platforms)
The Canadian government assesses a GST of 5% on digital services, including Upwork Canada’s. A similar tax may apply for certain provinces, so GST/HST rates may vary. Clients of Upwork Canada are also subject to these rules.
On a positive note, sellers and clients can choose whether Upwork collects the GST/HST or QST from them.
Note that PST in BC, SK, MB will still apply to all users in those provinces without exception.
If an Upwork user happens to have a GST/HST or QST number registered on Upwork, then the platform is not obliged to tax users. However, Upwork will collect GST/HST and QST numbers in September 2021.
For users who don’t have a GST/HST or QST number yet, Upwork must assess the tax based on the following:
- Connect purchases
- Freelancer service fees (not the earnings)
- Membership fees (for the Freelancer Plus plan)
- Payment processing fees for Direct Contracts
Keep in mind that Upwork only collects GST/HST or QST for fees and purchases made by freelancers. They do not collect GST/HST from the clients of freelancers on the freelancer’s behalf.
Therefore, if the freelancer is required to collect GST/HST or QST from their clients, that is their responsibility – not Upwork’s.
Provincial Tax Rates
For anyone using Upwork’s services, their exact tax amount under the new law will depend on their location since the Canadian government imposes these taxes on a national and provincial scope. And because each province has a different law, the Upwork user’s tax may fall into any of these four categories:
- GST only: Collected by the Canada Revenue Agency (CRA)
- Harmonized Sales Tax (HST): National and provincial taxes are combined into a single tax, collected by the CRA
- GST plus provincial sales taxes (PST): Collected separately by the authorized government body
- GST plus Quebec Sales Tax (QST): Collected separately by the official government body
The chart below breaks down the combination of national and provincial taxes assessed per province.
In addition, there are other important things to note:
- GST does not apply to GST-registered users in PST provinces such as BC, MB, and SK.
- In BC and SK, PST applies without exception.
- MB’s PST law is effective December 2021 and may apply without exceptions.
How To Calculate GST
Once collection begins, Upwork users will be assessed the applicable GST on fees for services provided through the website. For example, take a look at Upwork’s sample calculation:
In the case of the regular 20% Upwork freelancer fee, if a freelancer earns $100 from a client, Upwork will charge them the 20% freelancer fee, which is $20. Under the new law, GST then applies to that $20 fee. So this is how the breakdown applies per province:
- GST only: $1 in taxes will be collected from you for that transaction
- HST: Between $2.60 and $3 will be collected
- GST + PST: $1 for GST, between $1.20 and $1.40 for PST
- GST + QST: $1 for GST, $2.00 for QST
How To Register Your GST/HST Numbers With Upwork Canada
Upwork must collect Canadian GST (and their corresponding provincial taxes) to render digital services to its consumers.
However, the laws don’t classify Upwork users with GST/HST or QST numbers as consumers, so these taxes don’t apply to them.
And if a user does not register their GST/HST or QST number on Upwork by the time they start collecting GST in November, the platform will proceed as if they do not have one and will begin collecting these taxes from the user.
However, if you file your number with Upwork at a later date, they will stop collecting these taxes at that time. Moreover, you should know that GST/HST and QST verification can last several days. So if you register your number after collection begins, Upwork cannot stop collecting until it validates your number.
Important: The validation process requires the taxpayer name indicated in the W-8BEN form (see it in Upwork’s Settings > Tax Information) to match the name attached to your GST/HST number.
Are you currently using Upwork’s platform? If so, you can file your GST/HST or QST with Upwork.
Are You Ready For The New Digital Tax Changes?
If you’re currently enjoying Upwork Canada’s freelancing platform, make sure you’re compliant with the new digital tax law. Preparing ahead of time can help you avoid unnecessary collections deducted from your fees.
- Agency, C. R. (2021, June 28). GST/HST measures relating to the digital economy. Canada.ca. Retrieved December 15, 2021, from https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/news109/news109-excise-gst-hst-news-no-109-june-2021.html#_Toc74308357
- Rekker, D. (2020, October 27). Upwork Canada: What You Need To Know Before You Sign Up. Wise. Retrieved December 15, 2021, from https://wise.com/ca/blog/upwork-canada
- Upwork. (n.d.). Canada Indirect Taxes for Freelancers. Upwork. Retrieved December 15, 2021, from https://support.upwork.com/hc/en-us/articles/4401838411283-Canada-Indirect-Taxes
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.