Non-resident businesses, take note: New tax rules coming July 1.

Many Canadians have received notices that their Netflix accounts will be charged taxes as of July 1. But what does this mean?

It’s simple: Before July 1, 2021, many digital services that did not originate in Canada were not subject to Goods and Service Tax (GST) and/or the Harmonized Sales Tax (HST). After July 1, non-resident vendors of cross-border digital services and products (and certain online platforms such as short-term accommodation) that sell to Canadian customers must register with the Canada Revenue Agency (CRA) , and charge and remit GST/HST if their total taxable product are CAD $30,000 or more in a twelve-month period.

In Canada, GST/HST rates are determined by where the consumer lives at the time of the transaction. GST is 5% in Alberta, British Columbia, Manitoba, Quebec, Saskatchewan, and the territories; HST is 13% in Ontario, and 15% in the Atlantic provinces. Information about applying GST/HST in the digital economy can be found here.

Other countries such as Mexico have similar regulations, but the difference here is that the GST/HST will be applied to both digital services and products offered by non-Canadian companies, and Canada’s new tax regulations will only apply to business-to-consumer (B2C) sales.

The new rules should make the process a bit simpler for non-resident businesses. As per Vistra Insights:

Under the current excise tax provisions, non-resident businesses are not required to register for GST/HST, unless they carry on business in Canada and are not a small supplier. To make this determination, a “carry on business” analysis must be conducted. This is a complex common law test where several factors are considered and weighted to determine whether a GST/HST registration is required. Due in part to the complexity of this process, many foreign companies that sell digital products or services in Canada have failed to register for GST/HST.

The CRA will introduce an online portal that will simplify registration and payment, and also accept foreign currency remittances. An overview of the new regulations can be found here; an online questionnaire that will help determine your business’s Canadian tax requirements can be found here. And continue to monitor our blog for changes and updates.

Disclaimer

Feature photo courtesy Pexels

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