In an effort to keep up with the ever-evolving landscape of digital products and services, the CRA released Notice 332 on January 16, 2021. This notice provided guidance to those providing digital products and services to customers located in Canada. In recent months, the Canada Revenue Agency (CRA) has been actively rolling out new rules and regulations to accommodate the needs of the digital economy. Below is a breakdown of everything you need to know to get the return that you deserve.
Understanding the Simplified GST/HST Registration Framework
The simplified GST/HST registration framework for non-resident suppliers, business owners, or operators selling to Canadian customers was created by the Canadian government to facilitate the collection of the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) on the supplies they provide. This new framework establishes the rules and regulations that these suppliers must adhere to in order to accurately collect the taxes. As of July 1, 2021, new rules apply to vendors of digital products or services operating outside Canada, and selling to Canadian consumers. These changes revolve around two scenarios that determine your obligation to register for HST/GST.
Scenarios for Registration
Scenario #1: If your revenue on total taxable supplies of digital products or services (including traditional services) within Canada does not exceed $30,000 over a 12-month period. In this case, you may be exempt from registering.
Scenario #2: If your revenues on total taxable supplies of digital products or services (including traditional services) exceed $30,000 CAD over any 12-month period beginning on or after that date. In this case, you will most likely be required to register.
Who Do These Changes Affect?
Cross-border Digital Products and Cross-border Services
Any digital businesses based outside of Canada that sells to or facilitates a service to Canadian based consumers. Examples include:
- Software, including applications, programs, and downloadable software (desktop software, mobile apps, video games).
- E-books or digital publications that can be read on e-readers, tablets, or computers (Audible, Amazon Kindle).
- Digital music downloads, audio books, and podcasts (iTunes, YouTube Music, Spotify, etc.).
- Video streaming services, video downloads, and digital videos (Hulu, Netflix, Disney+, Amazon Prime, etc.).
- Stock photos, digital artwork, icons, and design assets.
- Online storage, file hosting, and cloud computing services (DropBox, Google Drive, LedgerDocs, etc.).
- Educational and training content offered digitally, including e-learning platforms.
- Services like digital magazines, newspapers, and subscription boxes that deliver digital content.
- SaaS (Software as a Service): Online software applications accessible on the web, often on a subscription basis.
- Food delivery or ride-sharing platforms (Uber Eats, Uber, Lyft, DoorDash, etc.)
In this scenario, the platform owners or operators (Amazon, Uber, Disney+, DoorDash, Lyft, Uber Eats, etc.) must collect and remit GST/HST. Unless the user of the digital product or service is already registered to pay GST/HST, they will need to show proof of registration to the supplier of the product (Amazon, Uber, Disney+, DoorDash, Lyft, Uber Eats, etc.). This can be done with either a business registration number or a GST/HST registration number, which is given out by the Canada Revenue Agency. It is important to note if the customer does not share your GST number with your digital suppliers, who are registered under the simplified GST framework, then they cannot claim GST credits that these suppliers collected and remitted to CRA on their behalf.
Platform-Based Short-Term Accommodation
Any short-term accommodations rental in Canada facilitated through digital platforms located outside of Canada (ex: property posted on Vrbo or Airbnb). In this scenario, the property owners or the platform operator must collect and remit GST/HST. Who is required to pay is determined by the revenue eligibility scenario or whether the owner is registered for GST/HST.
GST/HST on Products Sold from Fulfillment Warehouses
Any products sold that are located in Canadian fulfillment warehouses whether the vendor is or isn’t located in Canada. If non-registered vendors sell goods through DPOs ( Amazon, eBay, Etsy, etc.) the DPOs must register for GST/HST.
How to Register for a HST/ GST Number?
To register for a HST you will first need to register for your business number. The quickest and easiest way to register for this is to use the online service at Business Registration Online ( BRO). Once you have registered for a business number you can then begin the process of registering for a HST/ GST account within the same session. If you already have a business number, you can use the BRO program to register for your HST/GST number.This number establishes you in the Canadian tax system as a legal business. Allowing the CRA to track the taxes you pay, the tax credits you receive, plus the taxes you charge from customers.
When to Collect and Remit GST/HST
Businesses registered under this new system will only need to collect and pay GST/HST on sales of digital products and services to regular consumers (businesses they sell to and who provide their GST/HST numbers are not included).
Determining Where the Tax Applies
UsUsually, the tax rate is based on the consumer’s normal residence, which is determined by factors like their home address, billing address, or payment information. Below are the tax rates listed by province:
| Province | Percentage | Type |
|---|---|---|
| British Columbia | 5% | GST |
| Alberta | 5% | GST |
| Manitoba | 5% | GST |
| Saskatchewan | 5% | GST |
| Northwest Territories | 5% | GST |
| Yukon | 5% | GST |
| Nunavut | 5% | GST |
| Quebec | 5% | GST |
| Ontario | 13% | HST |
| New Brunswick | 15% | HST |
| Newfoundland and Labrador | 15% | HST |
| Nova Scotia | 15% | HST |
| Prince Edward Island | 15% | HST |
How LedgersOnline Can Help
All in all, the new GST/HST rules for digital products and services are complex and it is important to understand how they apply to your business. Be sure to check out CRA’s Notice 332 for more information and guidance on how the new rules apply to you. With the right information, you can make sure you are getting the returns you deserve.
If you have any questions or need help with the GST/HST registration process, don’t hesitate to reach out to LedgersOnline. Our team of experts can help you understand the process and provide ongoing support with any other GST/HST questions.
