If your business buys digital goods or services from non-resident suppliers online, you might end up in a surprising tax situation. Since July 1, 2021, some non-resident sellers must charge GST or HST on their sales to Canadian customers, and if the seller is registered under the Canada Revenue Agency’s (CRA) Simplified GST/HST system, you cannot claim those taxes back as input tax credits (ITCs) on your returns or as GST/HST rebates. 

Why can’t I claim ITCs when buying from foreign online suppliers who are registered for the Simplified GST/HST System? 

Many Canadian businesses, especially startups and entrepreneurs, may be unknowingly paying GST/HST on digital goods and services from non-resident suppliers, believing they can claim it as an ITC or rebate. However, if the supplier is registered under the Simplified system, this isn’t possible. The CRA’s rules state that if you didn’t provide your GST/HST registration number to the supplier, they are required to charge you tax, and there’s limited recourse for recovering it—unless you go directly to the seller, who may be reluctant to work with you on any GST/HST recoveries. 

This issue is becoming more common as digital services like SaaS or online subscriptions are increasingly part of inputs to business operations. Even though CRA’s auditors haven’t widely addressed this issue yet, businesses should be aware that this could change in the future. 

How do I know if the supplier is registered for the simplified method? 

There are ways to minimize this tax headache. First, check if the supplier is registered under the Simplified system. You can do this by searching the CRA’s registry using the business’ name and if registered, they will have a GST/HST number ending in “RT9999″—this indicates the supplier is using the Simplified system, and no ITCs can be claimed. If the number ends in “RT0001”, you can usually claim an ITC. 

If the supplier is charging you tax incorrectly, and you are GST/HST registered, provide them with your registration number. They may be able to issue you a refund and ensure you aren’t charged tax in the future. 

What are the next steps to mitigating my GST/HST risks? 

This issue serves as a cautionary tale for businesses buying digital goods online. Ensure you’re aware of the suppliers’ tax status and always confirm that your GST/HST registration is provided to the remote supplier and applied correctly by them, to not charge your business GST/HST. If you’re unsure how to handle this, partnering with an accountant or tax professional can help you navigate these complexities and minimize the risk of issues with the CRA. 

At Achen Henderson CPAs, we specialize in helping businesses manage indirect taxes and stay compliant with Canadian tax rules. Let us help you manage these challenges effectively. 

Get GST or HST help today!