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Canada’s goods and services tax for electronically supplied services

Canada is known for hockey, maple syrup and cold winters, but it is also the most highly educated country with more than half of its residents holding college degrees.

The following content was reviewed and updated as of Jan. 8, 2019.

Legislative effective date

Goods and services tax (GST) and harmonized sales tax (HST): Jan. 1, 1991

Quebec Sales Tax (QST): Jan. 1, 2019

Name of tax

GST and HST—both federal taxes

QST—a provincial tax

Please note: Quebec is the only Canadian province to introduce an e-service tax for nonresident suppliers; other provinces require some form of presence, such as a server, to create a local supply. As such, QST is the only provincial tax referenced in this document.

Statute of limitation

Four years; no limitation in cases involving fraud

Standard rate of GST et al

GST (5 percent), HST (13 percent or 15 percent) and QST (9.975 percent)

Electronic supplies

GST/HST and QST: There is no formal definition of electronic supplies in the legislation. Generally, they are considered to be the supply of digital content as a supply of intangible property by way of sale or license, or a service. Some examples include: computer software and digital content such as music, online gaming and movies.

QST: Electronic supplies include digital property and services distribution platforms with respect to taxable supplies of intangible property and services received by Quebec consumers, where the digital platforms control the key elements of the transactions (e.g., billing, transaction terms and conditions, and delivery terms).

Registration

GST/HST: No requirement exists for nonresidents of Canada to register and collect tax unless the nonresident has a permanent establishment in Canada or is carrying on business in Canada and revenue from worldwide taxable supplies exceeds $30,000 Canadian dollars (CAD) a year.

The determination of whether a particular supplier is carrying on business in Canada is made by looking at various factors. In particular, nonresidents that maintain a branch or office in Canada, regularly have their employees enter Canada, or maintain assets or inventory in Canada may be considered to be carrying on business. If none of these factors are relevant, merely selling goods to Canadian customers is generally not sufficient for a supplier to be considered to be carrying on business in Canada.

There is no distinction between supplies made to business-to-business customers (B2B) and supplies made to consumers (B2C).

QST: Currently, the QST rules are identical to the GST/HST rules. However, effective Jan. 1, 2019, for nonresident suppliers located outside Canada, and effective Sept. 1, 2019, for nonresident suppliers located in Canada, registration will become mandatory where taxable supplies are made to consumers in Quebec (where annual supplies exceed $30,000 CAD).

Customer identification

The customer is generally determined by the information provided by the purchaser at the time of transaction and is often the person required to pay consideration for the supply. No distinction is made between B2B and B2C customers.

In situations where a nonresident supplier is not required to register and collect tax, certain business customers and all consumers (noncommercial customers) are required to self-assess the tax.

While businesses engaged in commercial activities are generally not required to self-assess GST/HST or QST, financial institutions, governments, municipalities, universities, schools, hospitals and nonprofit organizations may be required to do so.

Customer location

In most cases, a customer’s location is determined by the billing or delivery address indicated by the purchaser at the time of transaction.

Supplier identification

Generally, no exemptions exist for registered suppliers (tax must be charged on taxable supplies).

Procedural matters

GST/HST and QST: Suppliers are required to indicate their GST registration number and to clearly identify taxes charged on the purchase document/receipt.

In most cases, when registering, if the nonresident supplier does not have a permanent establishment in Canada it is required to submit and maintain a security amount equal to either 50 percent of its anticipated net GST/HST for the following twelve months, or $5,000 CAD (whichever is larger).

Historic transactions

In situations where a nonresident supplier later discovers it should have registered and charged tax, registration is generally backdated to the earliest transaction within the last four years.

A customer’s ability to recover tax paid on purchases is usually limited to four years from the date of the original transaction. Under certain circumstances, registered suppliers must recover the tax within two years from the date of the original transaction.

QST: Any potential exposure for QST purposes is only applicable from Jan.1, 2019.

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