Significant changes to GST/HST on e-commerce supplies need careful consideration

  • February 23, 2021

In its Fall Economic Statement the federal government introduced changes to the application of the GST/HST on e-commerce supplies. The Canadian Bar Association Commodity Tax, Customs and Trade Section has reviewed those proposed changes and is offering comments on their application.

Non-resident distribution platform operators (DPOs) registered under the simplified rules are required to collect GST/HST on behalf of non-registered vendors selling on their platforms even though some of those vendors might already be required to register and collect tax themselves. This can lead to problems if software or other limitations of the DPO prevent registered vendors from opting out of the DPO’s remittance program. In such cases, the Section notes, “the GST/HST-registered vendors will be unable to remit their required taxes.”

“The proposed legislation should address situations where a DPO facilitates supplies by Canadian suppliers to ensure tax is properly collected and that the Canadian supplier does not incur liability if it seeks to make supplies through a non-resident distribution platform registered under the simplified regime,” it says. In addition, Finance Canada should consider making it a default rule that DPOs be solely responsible for collecting and remitting the tax in these circumstances.

Short-term accommodations

Under proposed changes “the supplier of short-term accommodation is deemed not to receive a supply from the accommodation platform operator,” thus relieving GST/HST on the platform fees charged by a registered accommodation platform operator to the supplier, regardless of whether the supplier is registered. The Section supports this measure but notes that it unduly favours the short-term accommodation industry over other gig-economy actors such as grocery delivery, home repairs or ride sharing services, where individuals are charged taxable platform fees by the DPO. “A specific benefit for the short-term accommodation sector is unfair,” the Section says, calling for the changes to apply to “any services offered to a supplier that makes a supply facilitated through a DPO.”

Fulfillment warehouses

The Section is concerned with proposed obligations that may be impractical for DPOs that sell tangible personal property in Canada, because they deem the supplies not to have been made by the actual supplier. “The proposed rules shift an unfair burden degree of liability to DPOs for transactions for which they do not have sufficient control or information,” the Section says, adding “the responsibility for collecting and remitting should not shift from the supplier to the DPO” for fear that the proposed rules could lead to double tax where goods are imported, which could lead to increased costs to consumers.

Distribution platform operators

The Section believes that the definition of a DPO in the proposed changes is too broad and by including “a third party who merely collected amounts from purchasers and transmitted these amounts to the supplier,” it would likely cause many payment processors to become distribution platform operators.

In its submission, the Section recommends the proposed changes use language similar to the Quebec legislation to determine whether a company is a DPO and whether it must charge and collect tax.

Specified Canadian recipient

The threshold to determine whether a non-resident must register under the new rules is based on sales to a “specified Canadian recipient,” which the Section considers too broad because it “will capture too many non-resident suppliers who do not obtain evidence of their customers’ registration, notwithstanding that these customers are in fact registered.” It recommends instead to use a reasonableness test whereby “a person is considered a specified Canadian recipient where it is reasonable to assume that person is not registered”, and that test should only apply to sales to individuals.

Finally, the Section suggests lengthening the timeframe for companies to implement the new rules, given the difficulties they may face updating their accounting and billing systems because of the pandemic. “In our view, the GST/HST proposals on e-commerce supplies will impact the largest number of taxpayers and is the most significant change to the GST/HST regime since harmonization of GST/HST in Ontario and British Columbia in 2010.” It is therefore critical to give companies enough time to comply with the new rules.