Are you a non-resident of Canada that is or plans to sell your wares to the Canadian market? There is a good chance that you have GST/HST sales tax obligations in Canada and its provinces.
Canada and its provinces have been modernizing their sales tax regimes. The changes are meant to capture more “tax collectors” (i.e. your remote seller business) in order to mitigate actual or perceived tax leakage.
In addition, the three provincial sales tax (“PST”) provinces of British Columbia, Saskatchewan and Manitoba have also expanded their PST base in relation to digital products and services to add to their overall sales tax intake over the last several years.
In the last three-plus years, all Canadian sales tax jurisdictions have also introduced rules for marketplaces and their remote sellers; we will cover these new rules in a separate article. This article covers remote sellers that do not sell their tangible or digital goods and services/intangibles via a marketplace or via third-party online platforms.
Canadian indirect taxes primer
For years, many online transactions have “escaped” sales taxation in Canada, particularly sellers who do not have places of business in Canada & PST provinces. This is because they reside in a different province or outside of Canada. Also, other indicators of nexus or connection to Canada or a province, were historically absent and therefore did not apply to non-resident remote suppliers.
As such, these suppliers were not required to register and collect Canadian federal GST/HST system and PST. Consider a Canadian customer acquiring the same product or service from a Canadian supplier, most likely they were paying one or more of these sales taxes. In the case of remote sellers outside Canada no taxes may have been paid. Recent changes regarding remote sellers result in more tax revenue for governments but also levels the playing field for Canadian suppliers vs. most remote suppliers that weren’t required to charge the Canadian customer one or more of these sales taxes.
Your non-Canadian company may need to register, collect, and report tax under several Canadian sales tax regimes. In addition to the federal GST/HST, the three PST provinces and Quebec’s value-added tax (“QST”) all have different tax authorities and varying rules regarding nexus and registration and they mostly have different sales tax bases. PST regimes mostly tax goods and services, most types of software and now many different digital products and services. For QST, the tax applies to most of the same goods, services and intangibles, as those under the federal GST/HST system.
For all the other provinces and territories, any remote seller that is, or is required to be registered for GST, is automatically registered for harmonized sales tax (“HST”). HST is effectively the same tax base of products and services and has mostly the same rules as GST, but simply at a higher rate. Ontario’s HST rate is 13%, while all the Atlantic provinces east of Quebec are at 15% HST. All the other provinces and territories have GST at 5%, along with their respective PST, or QST in the case of Quebec.
British Columbia PST – businesses selling goods and located outside the province
Effective July 1, 2020, businesses located outside British Columbia must register, charge, report and remit PST on taxable goods, if they do ALL of the following:
- Sell taxable goods to customers in British Columbia, including online sales;
- Accept orders from customers located in British Columbia (including by telephone, mail, email or Internet) to purchase goods; and,
- Hold the goods you sell to your British Columbia customers in inventory in British Columbia at the time of sale (e.g. you use a British Columbia fulfilment warehouse).
For all businesses located outside British Columbia
Also, effective April 1, 2021, businesses located outside British Columbia, and within or outside Canada, must register, charge, report and remit PST on taxable software or telecommunications, if they meet ALL of the following conditions and surpass the taxable sales registration threshold (defined further below):
- sell or provide taxable software for use on or with an electronic device ordinarily situated in the province or sell or provide taxable telecommunication services to customers in British Columbia,
- accept orders from customers located in the province (including by telephone, mail, email or Internet) to purchase software for use on or with an electronic device ordinarily situated in British Columbia or telecommunication services, and
- your business exceeds the taxable British Columbia sales threshold for registration (as outlined below) for residents and non-residents of Canada.
If your company is located outside Canada and meets the first two conditions above, then your company will be required to register if either:
- your gross revenue in the previous 12 months from all sales and provisions of software and telecommunication services to British Columbia customers is more than $10,000; or,
- your estimated gross revenue in the next 12 months from all sales and provisions of software and telecommunication services to British Columbia customers is more than $10,000.
Saskatchewan PST – businesses in and outside Canada
Starting on or after April 1, 2017, PST registration was greatly broadened and is now required for any business (in or outside Canada) that meet ALL of the following criteria:
- sells or leases taxable goods to a Saskatchewan customer as a final sale (excludes resales) for use or consumption in the province;
- sells or leases taxable services to a Saskatchewan customer as a final sale (excludes resales) for use or consumption in the province; or
- sells or provides for no charge, taxable goods to a person in Saskatchewan for general use or consumption as a promotional distribution.
Manitoba PST – businesses in and outside Canada
Any seller (including those that don’t carry on business in Manitoba) that makes taxable sales of goods to Manitoba customers for use or consumption in Manitoba and meets ALL of the following criteria, is required to be registered to collect, report and remit PST:
- the seller causes the goods to be delivered in Manitoba,
- the seller, directly or through an agent, solicits orders for goods from Manitoba customers by advertising or by any other means, and
- the seller accepts orders to purchase goods and the order originates in Manitoba.
However, if the non-resident seller does not meet the above three criteria, but they hold inventory in Manitoba at any time, they will be required to register and collect, report and remit PST, provided the goods are sold and shipped to a Manitoba customer for use or consumption in the province and not for resale purposes.
If you have a business that is selling remotely into any jurisdiction in Canada, you may have indiret tax obligations to Canada and, potentially, one or more Canadian provinces. Please reach out so we can help you and your business determine you indirect tax obligations.