What are the GST/HST Rules for Digital Products and Services?

July 5, 2021 | Written by: Sohail Afzal

What are the GST/HST Rules for Digital Products and Services?

The GST/HST for Digital Products and Services would impact the non-resident vendors who sell Digital products and services to the consumers in Canada.

The online platform operators would now be required to register, collect and remit the GST/HST tax. This tax has come into the highlight as the sales of the E-commerce industry have skyrocketed.

It has been reported that it increased by 70 percent in 2020.

This has benefited the foreign business, but unfortunately, it has put Canadian businesses at a disadvantage.

In this article, you’ll get to know the nitty-gritty details of GST/HST Rules for digital Products and services.

Read along to figure it out!

Rules of GST/HST on E-commerce Supplies

It is basically for all those E-commerce business owners that sell their products and services to the consumers in Canada, which includes:

  • Cross border digital products and services
  • items sourced from fulfillment centers in Canada
  • short-term accommodation through digital platforms

Cross Border Digital Products and Services

Currently, the vendors who are not physically located in Canada but are doing business in Canada by selling their products and services to the consumers in Canada do not have to collect the GST/HST tax. However, on the other hand, the vendors in Canada who sell their Digital products and services have to charge the customer GST/HST; as a result, their products and services become more costly and less competitive.

To balance the foreign and Canadian vendors, this tax has been proposed to ensure that foreign vendors who don’t have any physical presence in Canada must register, collect, and remit the GST/HST once the revenue exceeds CAD 30,000.

Items Sourced From Fulfillment Centers in Canada

A similar drawback is also observed when the people in Canada buy the Goods and services from an E-commerce site online that doesn’t have any physical shop, but the E-commerce site vendors keep their stock in the Canadian fulfillment warehouses. As a result, these vendors aren’t obliged to charge the GST/HST tax from the customers. However, when the e-commerce site is Canadian based, they have to charge the GST/HST from their customers, which again puts the Canadian Vendors at a disadvantage.

To solve this problem, the proposals would apply GST/HST on all goods sold situated in Canadian fulfillment warehouses facilitated by non-resident vendors or digital platform operators to Canadians. Now, the vendors would have to file HST return for this purpose.

Short-term Accommodation Through Digital Platforms

Nowadays, most people use digital platforms to rent out their property. So, that happens in Canada as well. But they don’t have to charge the GST/HST on the property because either they don’t know about it or the rent is far below CAD 30,000 registration threshold.

However, the property owners who do not use the Internet for the rental and use the traditional methods of renting it out have to charge the GST/HST from the customers.

Conclusion

The proposal for the GST/HST on the foreign vendors would benefit the Canadian vendors in selling the service and products online. The Canadian vendors weren’t able to compete with the Vendors who were not physically located in Canada but were selling the goods and services to the consumers in Canada.

Sohail Afzal CPA Toronto

Sohail Afzal, CPA, CMA, MBA

Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.

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