New GST/HST Requirements for Online Marketplaces and Other Digital Platforms

With the onset of the global pandemic, the federal government postponed its budget for March 2020 and, instead, delivered a Fall Economic Statement (FES): Supporting Canadians and Fighting COVID-19 on November 30, 2020. The FES included several GST/HST-related announcements of interest to domestic and foreign businesses. Although significant attention has been paid to the proposed GST/HST registration requirements for non-resident suppliers of digital products and services to Canadian consumers, below are some of the significant GST/HST proposals for digital platform operators (Platform Operators) for both residents and non-residents of Canada. For more information about other measures included in the FES, please see our December 2020 Blakes Bulletin: Fall Economic Statement 2020 - Selected Tax Measures.

Most importantly, although the operator of a digital platform is not a party to the underlying transactions that occur between vendors and purchasers on its site, the proposed rules will make them liable to collect and remit GST/HST in certain circumstances.

• A Platform Operator is defined as a person who “controls or sets the essential elements of the transaction between [a] third-party vendor and [a] purchaser.” The FES provides three examples of what this phrase means: providing listing services for the sale of goods, setting payment terms, and setting delivery conditions. If no such person exists, the Platform Operator is defined as a person who is involved, directly or through arrangements with third parties, in collecting, receiving or charging payment for the sale and transmitting payment to the third-party vendor. However, a Platform Operator does not include a person who operates a website that simply allows vendors to list their goods for sale, such as a classified or advertising website, or is solely a payment processor.

• The Platform Operator is required to collect and remit the GST/HST on sales of tangible personal property sold through the platform by a non-registered vendor (including sales by small suppliers in Canada), but only in respect of property delivered to a recipient in Canada from a place in Canada (e.g., from a fulfilment warehouse in Canada) or from a location outside Canada by a method other than mail or courier.

• If the Platform Operator is a non-resident and not registered (or required to be registered) under normal GST/HST rules, it may become registered under simplified rules. The simplified GST/HST registration and remittance framework requires registrants to collect GST/HST only from Canadian consumers. Registrants under the simplified framework do not report “net tax” and will not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Only business-to-consumer supplies are taxable under the simplified registration system. If a business is charged tax in error, the business has no recourse to the Canada Revenue Agency for an input tax credit or rebate for tax paid in error (but the supplier can provide a refund). Canadian businesses should provide their GST/HST registration number to non-resident suppliers as evidence of an exemption from the simplified GST/HST (a penalty will apply if a consumer provides a GST/HST registration number to a non-resident vendor to evade tax on purchases for personal consumption).

• If the goods are subject to GST at the border and the Platform Operator has a full GST/HST registration (i.e., not a simplified registration), the Platform Operator is deemed to have paid such taxes even if another person was the importer of record, and only the Platform Operator is eligible to claim an input tax credit or refund of such GST.

• For intangible personal property or services (e.g., certain subscription services or software) sold through the platform by a non-registered non-resident vendor, the Platform Operator is required to become registered, under either the regular or simplified registration rules, and to collect GST/HST on the sales by such vendors.

• Service fees charged by the Platform Operator to the non-registered vendors are not subject to GST/HST.

• For sales by GST/HST registered vendors, all normal rules are proposed to apply. Namely, GST/HST applies to platform fees, and the vendors are required to collect and remit GST/HST (subject to the possibility of the vendor and the Platform Operator entering into a “billing agent” election).

• Specific rules apply to Platform Operators who facilitate supplies of short-term accommodation in Canada. Supplies of a residential complex or a residential unit made to a person for a period of less than one month are generally subject to GST/HST. The FES proposes a system with two options: (1) if property owners are registered, they continue to be responsible for collecting the GST/HST, or (2) if property owners are not registered for GST/HST purposes, the accommodation Platform Operator will be deemed to be the supplier of short-term accommodation and responsible for collecting the GST/HST.

• Where the accommodation Platform Operator is carrying on business in Canada, the Platform Operator is required to register under the normal GST/HST rules. A non-resident accommodation Platform Operator who is not carrying on business in Canada can register under the simplified registration system.

• No GST/HST would apply to fees charged by Platform Operators to the non-registered property owner of short-term accommodation in Canada. However, a service fee charged by the accommodation Platform Operator to a registered property owner, or to a guest for the services of facilitating the transaction between the guest and the property owner, would be subject to GST/HST.

The proposed rules are intended to come into force on July 1, 2021. However, at present, the government is seeking stakeholders’ views and comments on the proposals and is inviting interested parties to submit comments on these proposals and the associated draft legislation by February 1, 2021.

For further information, please reach out to any member of our Tax group or your usual Blakes contact.