GST/HST Requirements for Non-Resident Vendors with Digital Activities Update

11 Feb 2021

Olivia Fei CPA - Tax Manager

Our lifestyle as we know it has changed as a result of the pandemic. People are embracing the idea of working remotely from home, studying at "Zoom" school, and shopping online. The traditional economy has been hit hard by the pandemic, whereas e-commerce has advanced.

With the boom of e-commerce, the government has proposed several GST/HST rules that target digital supplies of goods and services as follows:

1. GST/HST and E-Commerce Supplies

Under the current rules, a non-resident that is not considered to be carrying on a business in Canada is not required to register for GST/HST. In general, the GST/HST is collected at the border, or the Canadian customer is required to self-assess and pay the applicable GST/HST. this often results in GST/HST not being collected nor remitted to the Canada Revenue Agency (CRA).

Under the proposed rules, the non-resident vendor is required to register under a new simplified GST/HST registration system if total sales in Canada exceed $30,000 per 12-month period. Once registered, the non-resident vendor is required to collect and remit GST/HST on all taxable supplies made to Canadian customers.

Other highlights on the above new rules include:

  • The new rules apply to non-resident vendors with no permanent establishment in Canada; 
  • This only applies on business to consumer supplies, and not on business to business supplies;
  • No input tax credits can be claimed by the non-resident vendor if the system is used;
  • The GST/HST rate is based on the consumer's residence with certain exception for real estate related property;
  • The new rules are applicable for consideration that becomes due or is paid on or after July 1, 2021

2. GST/HST and Goods Supplied through Fulfillment Warehouses located in Canada

Under the current rules, there is generally no requirement for the non-resident vendor or distribution platform operator to collect or remit GST/HST on sales made to a Canadian purchaser.

Under the proposed legislation, the distribution platform operator is required to register under the normal GST/HST system to collect and remit sales tax on sales of goods located in fulfillment warehouses in Canada, if such sales are made by a non-registered vendor, and the operator is not a small supplier.

If those sales are made by the non-resident vendor directly from a fulfillment centre in Canada (i.e. they are not made through a distribution platform), the non-existent vendor is required to register under the normal GST/HST system, to collect and remit the sales tax unless they are considered a small supplier.

The new rules are applicable for consideration that becomes due or is paid on or after July 1, 2021.