Why online marketplaces and e-commerce businesses should review their Canadian sales tax obligations
Operators and enablers of online marketplace platforms, and other e-commerce businesses, that did not have Canadian sales tax obligations when they began operating can now find themselves in the obligation to register and collect Canadian sales tax in one or more jurisdictions. Although each jurisdiction has its own definition, very generally, an online marketplace operator or facilitator is someone who facilitates an online marketplace for sellers and collects payment for sales made through the platform.
Canada imposes federal GST and HST on supplies of most goods and services made in Canada at rates ranging from 5% to 15%, depending on the province in which the supply is made. Additionally, British Columbia, Saskatchewan, Manitoba and Quebec levy a separate provincial sales tax. While the Quebec sales tax (“QST“” the legislation generally reflects the federal GST, provincial sales tax or retail sales tax levied in British Columbia, Saskatchewan and Manitoba (the “PST Provinces”) is quite different. This results in five different tax regimes that require their own individual analysis.
Generally, the seller or service provider is responsible for sales tax compliance (for example, recording, collecting, remitting, and reporting) with respect to a transaction, even when the sale is performed by an agent. However, in the context of e-commerce, legislative changes announced or implemented in recent years have shifted the burden of sales tax compliance from the seller to the operator of the online marketplace platform or facilitator. for specific transactions. Additionally, what is considered taxable in PST provinces has increased; how these rules work will vary from province to province.
Saskatchewan’s new PST regime for market facilitators and market vendors came into effect on January 1, 2020, making Saskatchewan the first of the PST provinces to announce market facilitator rules. In addition to the requirement for some Market Facilitators to register, collect and remit SK PST, they may also be required to charge SK PST on the fees between Market Facilitator and Seller.
In addition, an electronic distribution service that is delivered, streamed or accessed through an electronic distribution platform has been added to the list of taxable services. This includes content delivered through an electronic distribution platform and any associated or ancillary services (eg transaction services, processing services and administration services). Suppliers of these electronic distribution services may be required to register, collect and remit SK PST on these taxable services.
Manitoba followed Saskatchewan, modifying The Retail Sales Tax Act (Manitoba) (the “MB RSTA”), effective December 1, 2021, to add provisions for operators of online sales platforms and online sellers. Operators of online sales platforms may now have registration and compliance obligations under the MB RSTA.
In addition, Manitoba’s RST rules have been expanded to cover streaming services and media purchases of music, most audio programs, television programs, movies or other videos, and ringtones. Suppliers may now be required to register, collect and remit MB RST on these sales.
Unsurprisingly, earlier this year British Columbia announced its intention to change its PST legislation. As of July 1, 2022, the Provincial Sales Tax Act (British Columbia) will be amended to add provisions for market facilitators and market sellers. Market facilitators should determine whether they are required to register, collect and remit BC PST in respect of sales facilitated through their platforms.
In addition, a new category of services – online marketplace services – will be subject to British Columbia PST. An online marketplace service is broadly defined to include (i) listing taxable sales of goods, software, or sales of services; (ii) advertising or promotion; (iii) customer service; (iv) storage; (v) fulfill orders or reservations; (vi) collect or facilitate payments, directly or indirectly, and transfer payments to the Marketplace Seller; and (vii) accept or assist with cancellations, changes, returns, or exchanges of taxable goods, software, or services. Persons providing services online will need to review their offerings and consider their British Columbia PST compliance obligations.
Federal and Quebec
Changes have also been made to the GST/HST and QST laws relating to e-commerce transactions in recent years.
What does this mean for businesses?
It is recommended that any business (whether or not it is physically present in a province) periodically review its operations from a Canadian sales tax perspective, as the relevant legislation changes often. This is particularly important for operators and facilitators of online marketplace platforms, as well as other e-commerce businesses, as the rules have changed significantly over the past few years. A periodic review will identify any potential compliance issues before the start of an audit by a tax authority or a due diligence review by a potential buyer of the business.