Quebec has recently tightened its rules, requiring companies outside Quebec, including non-residents of Canada, who sell into Quebec, to register and charge, report, and remit QST.
Does your business sell its products or services online to Canadian customers? If so, have considered your sales tax obligations across the country? Even for seasoned professionals, calculating sales tax based on where your customers are, can be difficult, and it is made even more difficult when your customers buy from you online.
If your business sells products or services online to customers in Canada, chances are you have to correctly calculate, charge indirect (sales) taxes in the form of GST, HST, and/or PST and remit it to various provincial and federal authorities.
I’m David Crawford, the Indirect Tax Leader at Achen Henderson CPAs, and I’ve designed this series of articles to teach you how sales tax applies to online sellers. In our first article of this series, we covered your business’ sales tax obligations in British Columbia for sales of products or services to BC customers. In our second, we covered the other two PST provinces of Saskatchewan and Manitoba. In this final article, we cover your business’ obligations around registration, charging and reporting sales taxes on sales to business customers in Quebec. We also cover the “harmonized” place of supply rules between the GST/HST regime and the QST, which determines which set of taxes apply to any given sale of goods, services or intangibles.
Canadian indirect taxes primer
Canadian sales tax regimes have been rapidly changing over the last several years and being modernized to reflect more online sales of products and services occurring in the economy, some of which may have “escaped” sales taxation, particularly with sellers not within the jurisdiction of a particular province or outside Canada. Quebec has been no exception to this by being one of the first provinces with its own sales tax (in addition to the federal GST) to lead the way in implementing a robust, but somewhat confusing set of registration nexus rules for non-residents of Canada and for non-residents of Quebec within Canada.
In this article, we will only address the registration and compliance requirements Canadian online and remote sellers that are not resident in Quebec. We will then cover the GST/HST vs. GST/QST place of supply rules.
What do Quebec’s latest QST registration rules look like for my business?
Effective September 1, 2019, Canadian businesses (including operators of certain digital platforms and marketplaces) selling to Quebec customers, had to consider their QST registration and collection obligations. Where these rules impact your business, registration can be done under a simplified system or the regular QST registration system.
In evaluating whether a Canadian business selling to individual or business customers in Quebec, they must have earned $30,000 in the prior 12 months of taxable sales of goods, services or intangibles (software, etc.) to Quebec individuals that are not registered for .
However, once registered for QST, businesses are required to charge and collect QST at the rate of 9.975 per cent on the above-noted taxable sales made to all customers resident in Quebec that are not registered for QST purposes. The reason for this later rule, is that any Quebec business (including sole proprietors) that is registered for QST, would typically be able to claim a refund (similar to GST/HST) for any QST paid on inputs to operate their business.
As such, this new rule captures QST on taxable goods, services and intangibles sold to consumers and other businesses and organizations that are not, and are not required, to be registered for QST. This could include residential landlords, certain businesses in the financial sector, some charities and non-profit organizations, most medical practices, and others.
Once a resident of Canada is registered for QST under these new rules and they are also presumably registered for GST/HST, the place of supply rules must be considered for sales in GST vs. HST provinces vs. Quebec. The place of supply rules under GST/HST are synchronized with the QST system so that, in theory, not all tax types apply.
For instance, if an Alberta supplier sold a taxable widget to a customer in Montreal and had the product shipped to the customer’s business address, the place of supply is in Quebec and not Alberta, so GST at 5% plus QST at 9.975% would be added to the price of the widget. If that same supplier instead sold the widget to a customer in Halifax in the same manner, the place of supply would be Nova Scotia and 15% HST would .
In general, the place of supply for goods is fairly straightforward when the supplier arranges and pays for the shipping to the customer’s home or business address. That is, the GST or HST rate (or QST if applicable) is based on the province of the customer. However, there are many different place of supply rules for services and intangibles such as software, etc. where the determination of whether GST vs. HST vs. QST is not as straightforward.
Prior to the 2010 place of supply rules overhaul, a service was generally taxed based on where the service was performed; however now it is generally taxed based on where the “enjoyment or use/consumption” of the service occurs. Similarly, the determination of the place of supply around intangibles was very complex but has been simplified under the current rules and generally is based on the province of consumption, use or enjoyment occurs. Where situations arise when this consumption, use or enjoyment takes place in multiple provinces, then there are “tie-breaker” rules that will determine the place of supply for services or intangibles and which type and rate of sales tax applies.
Although these are “rules of thumb” to keep in mind, depending on the type and nature of the service, there are different place of supply rules to consider and the same applies for intangibles as well. We’d be happy to look at your particular situation to see how the place of supply rules apply to your business. If your billing system or accounting software billing module and staff awareness and knowledge of these rules is insufficient, your business may be at risk of GST/HST or QST audit. Audits can quickly spiral into large professional fees, tax re-assessments, including penalties and interest for failure to charge the correct types and rates of tax amongst the different provinces.
Not so complicated right? At Achen Henderson, we can help you to take the complexity out of sales taxes. We are excited to learn about your business, or your client’s business and tax challenges. Call us today for help getting your sales tax collection and reporting right, so that you can rest easy by ensuring your business is not offside with these rules across Canada or around the world.
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