Digital Sales in Canada: GST/HST Rules

Digital Sales in Canada: GST/HST Rules

The government of Canada has introduced new goods and services tax (GST) or harmonized sales tax (HST) rules. These rules affect all people involved in e-commerce transactions, particularly foreign companies who sell goods and services online in Canada.

Let’s take a look at how the new GST/HST rules impact digital sales in Canada.

The New GST/HST Rules

The COVID-19 pandemic caused a surge in online shopping last year when many Canadians sitting at home under lockdown began purchasing items online. The Fall Economic Statement released by the Government of Canada showed that retail e-commerce increased by approximately 70% from January to August 2020.

The sales tax levied on digital transactions had not seen any changes since the time when brick-and-mortar stores were popular, and the economy depended on their success. The Canadian government is concerned that these old rules don’t take into account the new trend of online shopping, putting physical businesses at a disadvantage compared to foreign online stores.

Hence, the new GST/HST rules seek to ensure the continued growth of the digital economy and the just and equal application of taxes on the business owners. The proposed tax rules are set to take effect from July 1, 2021, and apply to all foreign businesses selling their products and services to customers in Canada.

A person shopping on their phone

Cross-Border Digital Products and Services

Under the current GST/HST tax rules, foreign businesses that don’t have a physical store in Canada and are selling their products and services online don’t need to collect any taxes. However, the consumer who resides in Canada can decide if they want to pay the GST/HST to the CRA regarding the value of purchased digital products and services.

On the contrary, vendors who reside in Canada and have a digital business must charge GST/HST on their products and services, making their items far more expensive and less appealing to customers.

The proposed tax rules suggest that all foreign businesses who use a digital platform to sell their products or services in Canada with a registration threshold higher than CAD 30,000 must collect GST/HST on their items.

The foreign businesses affected under this rule must set up a simplified process to collect the registration information of GST/HST and confirm the consumer’s address so they can calculate how much tax would apply in each individual case.

If you’d like to know more about the new GST/HST rules, contact Faber LLP. They’re an accounting firm in Edmonton, and they have a team of Chartered Professional Accountants who can help guide your business with proper tax planning. Visit their website or get in touch with them today.


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