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GST/HST for digital economy businesses

Supply of qualifying goods in Canada

New rules for digital economy businesses are in effect as of July 1, 2021.

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Once you are required to be registered for the normal GST/HST regime, you are required to charge and collect the tax on the taxable supplies that you make in Canada. The rate of tax that you are required to charge and collect on those supplies is based on the place of supply that determines whether a supply is made in Canada, and the province in which a supply is made.

Who charges and collects the GST/HST

The person who is required to charge and collect the GST/HST under the measure on the supply of qualifying goods (also known as “qualifying tangible personal property supply”) to purchasers depends on whether:

  • those supplies are made directly by the vendor or are facilitated by a distribution platform operator through its platform
  • the vendor is registered for the GST/HST under the normal GST/HST regime

Vendors

If you are a vendor who is registered under the normal GST/HST regime, you are required to charge and collect the GST/HST on your supplies of qualifying goods. This includes those supplies that are facilitated by a distribution platform operator through its platform.

Distribution platform operators

If you are a distribution platform operator (resident or not), you are required to charge and collect the GST/HST on the supply of qualifying goods that you facilitate through your platform and that are made by vendors who are not registered for the GST/HST (resident or not). You are required to charge and collect the GST/HST on the final sale price for these goods that is charged to the purchasers by the vendors.

You are not required to charge and collect the GST/HST on the platform services that you provide to these non-registered vendors in relation to these goods.

As a distribution platform operator, you are also required to charge and collect GST/HST on your own supplies of qualifying goods that you make directly to purchasers.

A distribution platform operator in respect of the supply of qualifying goods made through a specified distribution platform is a person other than the supplier or an excluded operator who:

  • controls or sets the essential elements of the transaction between the supplier and the recipient, or
  • if that circumstance does not apply to any person, is involved, directly or through arrangements with third parties, in collecting, receiving or charging the consideration for the supply and transmitting all or part of the consideration to the supplier.

In relation to the supply of qualifying goods, an excluded operator is a person who:

  • does not set, directly or indirectly, any of the terms and conditions under which the supply is made,
  • is not involved, directly or indirectly, in authorizing the charge to the recipient of the supply in respect of the payment of the consideration for the supply, and
  • is not involved, directly or indirectly, in the ordering or delivery of the property;
    or
  • solely provides for the listing or advertising of the property or for the redirecting or transferring to a digital platform on which the property is offered;
    or
  • is solely a payment processor.

Generally, under this measure a specified distribution platform is a digital platform through which a person facilitates the supply of qualifying goods by another person who is not registered under the normal GST/HST registration regime.

A digital platform generally includes a website, an electronic portal, gateway, store or distribution platform or any other similar electronic interface, but does not include an electronic interface that solely processes payments.

Figure 1

Figure 1 – Text version

A diagram showing who charges and collects GST/HST on the supply of qualifying goods under the supply of qualifying goods in Canada measure. Text version below.

In scenario (1), the registered non-resident vendor is required to collect the GST/HST on the supply of qualifying goods that it makes directly to purchasers.

In scenario (2), the registered Canadian vendor is required to collect the GST/HST on the supply of qualifying goods that it makes directly to purchasers.

In scenarios (3) and (5), the registered distribution platform operator is required to collect the GST/HST on the supply of qualifying goods made by non-registered (non-resident or Canadian) vendors that are facilitated through its platform to the purchaser.

In scenario (4), the registered distribution platform operator is required to collect the GST/HST on the supply of qualifying goods that it makes directly to purchasers.

Safe Harbour Rules

In many cases, a distribution platform operator may rely on information provided by third-party suppliers on the transactions they make for determining whether the platform operator is required to collect and remit tax on the supply of qualifying goods it facilitates.

A joint and several, or solidary, liability is imposed on a distribution platform operator and a third-party supplier for the collection and remittance of tax in respect of the supply of qualifying goods if the third-party supplier makes a false statement to the platform operator. The liability of the distribution platform operator for failure to collect and remit tax in respect of the supply of qualifying goods in this case is limited if the platform operator did not know and could not reasonably be expected to have known that the third-party supplier made a false statement and relied in good faith on the false statement.

A distribution platform operator is therefore not held liable for failing to collect and remit tax in respect of the supply of qualifying goods as a result of having relied in good faith on a false statement by a third-party supplier. In this case, the platform operator is relieved from liability to the extent that it did not collect and remit tax (i.e., where it partially collected tax, it remains liable for those amounts) and the third-party supplier that made the false statement is liable for any amounts not collected. A false statement includes a statement that is misleading because of an omission from the statement.

Disclosing the tax to customers

For information about charging and collecting the GST/HST under the normal GST/HST regime, go to Receipts and Invoices.

Reporting period

You are required to file a GST/HST return for each reporting period to report your net tax for the reporting period.

For more information about the rules for filing for the normal GST/HST, see Due dates for filing a GST/HST return

Net tax calculation

Your net tax calculation under this measure is determined based on the standard methods for calculating your net tax.

However, as a registered distribution platform operator you are also eligible to claim input tax credits in respect of the tax paid on the importation of goods by non-registered vendors who import their goods into Canada to be sold through your platform. In order to so, you are required to obtain satisfactory evidence from the vendor that the tax in respect of the importation has been paid.

A joint and several, or solidary, liability is imposed in this case on a distribution platform operator and the vendor for all obligations that arise upon or as a consequence of the platform operator claiming a non-allowable input tax credit in respect of the tax on the importation if the vendor makes a false statement to the platform operator. The liability of the distribution platform operator for claiming the non-allowable input tax credit in this case is limited if the platform operator did not know and could not reasonably be expected to have known that the vendor made a false statement and relied in good faith on the false statement.

A distribution platform operator is therefore not held liable for claiming a non-allowable input tax credit in respect of the tax on the importation of a qualifying good as a result of having relied in good faith on a false statement by a vendor. A false statement includes a statement that is misleading because of an omission from the statement.

For more information on how to file a tax return, see Complete and file a return

What types of supplies are taxed

Tax is charged and collected on the supply of qualifying goods that are made to purchasers.

The supply of a qualifying good is generally a taxable supply of a good that is delivered or made available to the purchaser in Canada. It does not include the supply of a good that is sent by mail or courier to the purchaser at an address in Canada from an address outside Canada by the supplier or by another person acting on behalf of the supplier. This therefore applies to the supply of qualifying goods in Canada, such as in a fulfillment warehouse, or shipped from a place in Canada to a purchaser in Canada.

Although the calculation of the registration threshold under this measure is based on the supply of qualifying goods to specified recipients, the obligation to charge and collect tax under this measure applies to the supply of qualifying goods made to any purchaser.

Place of supply regime for the supply of qualifying goods

The place of supply rules that determine the rate of GST/HST that you are required to charge and collect on the supply of qualifying goods are the normal GST/HST place of supply rules for the supply of qualifying goods.

The supply of qualifying goods is made in a particular province if the goods are delivered or made available to the purchaser in the province.

In this case, goods are considered to be delivered in a province if the supplier:

  • mails or sends the goods by courier to an address in the province;
  • ships the goods to a destination in the province that is specified in the contract for their carriage; or
  • transfers possession of the goods to a common carrier or consignee that the supplier has retained on behalf of the recipient to ship the goods to a destination in the province that is specified in the contract for their carriage.
Example 1 - Supply of qualifying goods made through distribution platform

A registered distribution platform operator operates a distribution platform through which it facilitates the supply of qualifying goods by vendors from around the world. The operator has fulfillment warehouses that are located throughout Canada from which it fulfills orders for goods sold by the vendors.

A non-resident vendor who is not registered for the GST/HST and is not carrying on business in Canada has some of its taxable goods in one of the fulfillment warehouses that is located in Ontario. The non-resident vendor supplies one of the qualifying goods through the platform to a consumer who lives in Ontario. The platform operator subsequently sends the good by courier to the address of the consumer in Ontario from its fulfillment warehouse.

A Canadian vendor in Ontario who is not registered for the GST/HST also has some of its taxable goods in one of the fulfillment warehouses that is located in Ontario. The Canadian vendor makes the supply of qualifying goods through the platform to a consumer who lives in Nova Scotia. The platform operator subsequently sends the good by courier to the address of the consumer in Nova Scotia from its fulfillment warehouse.

The supply of the good to the consumer in Ontario is made in Ontario since it is sent by courier to an address in that province. The distribution platform operator is therefore required to charge and collect HST at the rate of 13% on the sale of the good. The HST is required to be calculated on the final sale price of the good to the consumer that is charged by the non-resident vendor.

The supply of the good to the consumer in Nova Scotia is made in Nova Scotia since it is sent by courier to an address in that province. The distribution platform operator is therefore required to charge and collect HST at the rate of 15% on the sale of the good. The HST is required to be calculated on the final sale price of the good to the consumer that is charged by the Canadian vendor.

Example 2 - Supply of qualifying goods made directly by registered non-resident vendor

A non-resident vendor who has registered for the GST/HST as required under this measure sells taxable goods through its website. The vendor has some of its goods in a fulfillment warehouse that is located in British Columbia. The non-resident vendor makes the supply of qualifying goods to a consumer who lives in British Columbia. The good is subsequently sent by courier to the address of the consumer in British Columbia.

The supply of the good is made in British Columbia since it is sent by courier to an address in that province. The vendor is therefore required to charge and collect GST at the rate of 5% on the sale of the good to the consumer. The GST is required to be calculated on the final sale price of the good to the consumer that is charged by vendor.

Example 3 - Supply of qualifying goods made directly by non-registered non-resident vendor

A non-resident vendor who is not registered for the GST/HST and is not carrying on business in Canada only makes the supply of qualifying goods through its website. The vendor does not have goods that are stored in Canada. The vendor makes the supply of a qualifying good for $100 US to a consumer who lives in Alberta and sends the good by courier from outside Canada to the address of the consumer in Alberta.

The vendor is not required to collect the GST/HST on the supply of the good. The supply is made outside Canada since the vendor is not registered for GST/HST and is not carrying on business in Canada. The vendor is also not subject to the measure for the supply of qualifying goods in Canada. The GST applies to the importation of the good at a rate of 5%.

What rate to charge

The rate of tax that you are required to charge and collect on the supply of qualifying goods depends on if they are made in Canada, and they are made in a participating province.

The current rates of tax are:

  • 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
  • 13% (HST) in Ontario
  • 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island

The rates are the same for the simplified and normal GST/HST.

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