This blog post was prepared with the assistance of summer student Adam Bendig.
Canadian legislators continue to extend the application of sales taxes to online transactions. In 2019 an amendment to Quebec’s provincial sales tax legislation required online retailers and service providers to collect and remit sales taxes for sales made within the province.
The trend continued as Saskatchewan enacted its own amendment in July of 2020, which retroactively applied provincial sales tax (“PST”) to a multitude of remote vendors such as Netflix, Amazon and Airbnb. Other than raising additional revenue, the policy goal of these amendments appears to be limiting competitive disadvantages that result from the fact that many transactions are subject to sales tax while transactions in some online marketplaces do not receive the same treatment.
By the end of 2021, we will see online vendors taxed universally across Canada. The remaining changes set to accomplish this are:
- British Columbia’s Bill 4 – 2020, which was effective April 1, 2021,
- Federal Bill C-30, which is effective July 1, 2021, and
- Manitoba’s proposal, which is effective December 1, 2021.
The various amendments feature minor differences, and this blog post outlines the new regimes applicable in Western Canada.
Saskatchewan
Changes brought by Bill No. 211 to The Provincial Sales Tax Act required international vendors making online sales to consumers in Saskatchewan to register and remit PST for all sales made after January 1, 2020. These changes aim to create fair competition between local and out-of-province sellers. Saskatchewan is the second jurisdiction in Canada to implement online sales taxes following Quebec in 2019. In implementing online taxes, Bill No. 211 extends the concept of vendors to include electronic distribution platforms, marketplace facilitators and online accommodation platforms, requiring all such vendors to collect and remit PST.
Electronic distribution platforms include websites, internet portals, gateways and applications which enable consumers to purchase retail items or acquire services. The services affected include those that are delivered, streamed or accessed, and PST applies both to the price of content delivery as well as to any associated fees. These changes extend PST to services such as Netflix and Spotify, and to online retail stores.
Marketplace facilitators are entities who make or enable a marketplace for sellers to make retail sales and directly or indirectly collect payments from purchasers. This has a direct impact on businesses such as Amazon or Walmart which enable third-party sellers, and requires the marketplace facilitator to collect PST on behalf of the third party seller.
Online accommodation platforms are electronic marketplaces that enable or facilitate sales of accommodation services (i.e. places to stay) within the province. This means that businesses such as Airbnb need to collect and remit PST on purchases of accommodations within the province.
While some online vendors voluntarily registered and remitted PST, a vast majority did not. The effects of these changes will increase the costs of various items for consumers. Whether it is the monthly Netflix subscription or an item purchased on an online marketplace, consumers must now pay PST.
British Columbia
As of April 1, 2021, BC has chosen to follow Saskatchewan’s lead and enforce out-of-province services to register and remit sales tax. The one major difference is that BC has chosen not to include electronic distribution platforms or marketplace facilitators in the wording of its Provincial Sales Tax Act. However, the changes effective April 1 do include services such as Netflix and Spotify by including out-of-province sellers and distributors of “telecommunication service.” Another difference between the provincial amendments is that BC already amended its legislation to tax all sales of accommodation services within the province at a prior date.
The differences between the Acts do allow for online retail and service providers to have different coverages. However, the legislation does indicate a growing pressure to ensure that businesses based outside of Canada follow the same tax scheme as those within.
Federal
Federal tax changes brought by Bill C-30, which took effect as of July 1, 2021, will extend sales taxes to online sales made to consumers all across Canada. This change will cause online subscriptions, purchases and services to collect GST/HST depending on the consumer’s jurisdiction. The effect of this change will cause purchases from services such as Netflix, Amazon or Airbnb to be taxed universally across Canada. The Federal Government stated in its 2020 fiscal plan that the goal of this legislation mirrors the provincial goals in its initiative to create a fair tax system. The initiative aims to address disadvantages that local sellers face compared to online retailers.
Manitoba
The Government of Manitoba’s 2021 budget outlines the province’s plan to enact similar online services sales taxes. The extension of Manitoba’s sales tax proposes to be in force as of December 1, 2021, making it the last province to target online sellers with provincial sales taxes. The proposed changes suggest that Manitoba believes it will collect over $8 million per year by extending provincial sales taxes to streaming services, online marketplaces and online accommodation platforms. While the terminology differs in the Manitoba proposal, the defined areas of impact are comparable to the Saskatchewan legislation.
Manitoba’s 2021 budget leaves the definitions of these areas somewhat vague. However, it is clear the Government intends to target both audio and video streaming under “streaming services.” Under online marketplaces, the budget clearly requires marketplaces to collect and remit for sales by third parties on their platforms. The budget describes online accommodations to be taxed for the booking of a physical location in Manitoba.
Determining the Location of Taxation
The Federal Government provides a comprehensive place of supply rule set for GST and HST; this rule set is likely appropriate for determining other provincial sales taxes. The rules state that if a supplier of a service receives a home or business address from the customer, that address will determine the place of supply. If the customer provides multiple addresses, the supplier must use the one most closely linked to the supply of the service. In the event that the customer does not provide a home or business address, the supplier uses the address in Canada that is “most connected” to the supply. The government gives the example of using a billing address when the customer does not provide a home or business.
The exception to the previous address rule is services rendered in relation to real property. The Federal Government states that where supply is in relation to real property, the place of supply will be deemed the province where the greatest proportion of the property is located. For online accommodation platforms, this rule means the location of the rental unit determines the tax charge, even if the supplier’s office location differs.
Future Considerations for Consumers
As we near the end of 2021, online service and retail providers will be subject to sales tax across Canada regardless of residential status. For consumers, this will result in an increase in many online transaction costs as purchases become subject to provincial and federal sales taxes. The exact increase in costs will vary by province. For example, a total 5% sales tax rate applies in Alberta, because there is GST but no provincial sales tax, whereas federal and provincial sales tax rates combine to an 11% rate in Saskatchewan. This change effectively means that a Netflix subscription will cost consumers in Saskatchewan 6% more than consumers in Alberta. However, these jurisdictional differences are already present across most purchases routinely made by consumers. As sales taxes are a preferred revenue source for Governments in Canada, we continue to see their application extended.
Need help evaluating the potential impact of these developments on your business? Contact a member of our taxation law team.
This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.