Article Outline
1. GST/HST and QST Registration
1.1. Entities eligible for GST/HST, and QST, registration
1.2. When is registration required?
1.3. Resident and non-resident persons
1.4. Carrying on business in Canada
2. E-commerce suppliers and simplified registration systems
3. Non-residents suppliers and operators of distribution platforms
4. Supplies via Canadian fulfillment centers and distribution warehouses
5. Platforms for Short-term accommodation
6. Other considerations
6.1. Electronic registration
6.2. Tax collected in error
6.3. Availability of input tax credits and refunds
6.4. Documentation
6.5. Eligible deductions from net tax
6.6. Compliance issues
6.7. Administrative tolerance
Works Cited
1. GST/HST and QST Registration
GST/HST
and QST are paid by registrants and non-registrants persons. The implementation
of the value-added tax in 1991 led to a substantial expansion of the federal
commodity tax base, as products and services that were previously not directly
taxed under the federal sales tax became subject to taxation. Additionally, the
multi-stage application of value-added taxes in Canada contributed to an
increase in tax revenues, generated from the greater number of taxpayers.
The registration of persons obligated to collect tax under both the federal and Québec legislations is central to the administration of GST/HST and QST. The stipulations are comprehensive and thorough, intended to establish a framework for those responsible for collecting tax on taxable supplies in Canada. This framework facilitates the remittance of that tax and allows for the claiming of input tax credits (ITCs), or refunds (ITRs), for taxes paid on supplies used as inputs for their commercial activities.
1.1.
Entities eligible for GST/HST,
and QST, registration
The
federal and Québec laws characterize a person as an individual, partnership,
corporation, trust, estate, or any entity such as a society, union, club,
association, commission, or other type of organization. According to these
laws, an individual is referred to as a "natural person." For example,
an individual engaging in one or more commercial activities as a sole
proprietor is considered a person obligated to register, unless that individual
qualifies as a "small supplier."
Another
example is a partnership. A partnership is also recognized as a distinct entity
separate from its partners. According to the legislation, any activity
performed by an individual as a member of a partnership is typically regarded
as an activity of the partnership itself, rather than that of the individual
member. Nevertheless, a partner, excluding individual partners, has the right
to claim input tax credits and refunds for GST/HST and QST that have been paid
on goods or services obtained for their own use, consumption, or supply in
relation to partnership operations. In this context, a partner, other than an
individual, may voluntarily register for GST/HST or QST, even if they were not
engaged in any commercial activities outside of their role within the
partnership
The following CRA policy statements, technical information bulletins, notices, and Revenu Québec interpretation bulletin provides more information on persons eligible to register for GST/HST and QST:
· GST/HST Policy Statement P-216 “Registration of a Partner” provides information on the eligibility of a partner that is not an individual to voluntarily register for GST/HST.
· GST/HST Technical Information Bulletin B-068 “Bare Trusts” explains CRA’s view on bare trust eligibility for GST/HST registration and the registration implication on the bare trust.
· GST/HST Policy Statement P-015 “Treatment of Bare Trusts under the Excise Tax Act” provides information on whether the beneficiary or the bare trust must register for GST/HST when carrying on commercial activities.
· GST/HST policy statement P-138R “The Effect of Making a Joint Venture Election on a Participant's Eligibility to Register and Claim Input Tax Credits” explains why a joint venture cannot register for GST/HST.
· GST/HST policy statement P-139R “Tax Liability and Input Tax Credit Entitlement of Non-Electing Joint Venture Participant” explains GST/HST liability and input tax credit entitlement of a non-electing joint venture participant.
· GST/HST policy statement P-171R “Distinguishing Between a Joint Venture and a Partnership for the Purposes of the Section 273 Joint Venture Election” provides information on why the participants in a joint venture may register for GST/HST in respect of joint venture activities, but not the joint venture.
· GST/HST Notices - Notice 284 “Bare Trusts, Nominee Corporations and Joint Ventures” provides information on why a bare trust or nominee corporation should not be designated as the operator under a joint venture election.
· GST/HST Policy Statement P-106 “Administrative definition of a "participant" in a joint venture” explains administrative definition of a "participant" in a joint venture.
- TVQ. Interpretation Bulletin 1-4/R2 “Nominal Partnerships” explains why Revenu Québec does not consider a nominal partnership to be a “person” under section 1 of the QSTA.
All
persons making taxable supplies in Canada while conducting business are
required to register for the GST/HST, unless the person is a small supplier, or
their sole commercial activity is the sale of real estate other than in the
course of a business, or they are a non-resident individual who does not carry
on business in Canada
1.3.
Resident and non-resident
persons
Excise
Tax Act (ETA) section 132 set out a number of rules to determine a
person's status as a resident or non-resident of Canada or Québec, including
the GST/HST and QST registration requirements. When the person is an
individual, they are considered resident in Canada, or Québec, if deemed to be
resident there under the provisions of the income tax act or Québec Taxation
Act
When
the person is a corporation, it is deemed to be resident in Canada, or Québec,
at any time if incorporated in Canada, or Québec, or continued in Canada, or
Québec. In the case of a partnership, an unincorporated society, a club, an
association or an organization, or a branch of any of the preceding types of
persons, is deemed to be resident in Canada, or Québec, if the member, or a
majority of the members, having management and control thereof, is or are
resident in Canada, or Québec, at that time (e.g., non-profit organizations,
charities, professional and trade associations). In the case of a labor union,
it is deemed to be resident in Canada, or Québec, if it is carrying on labor
union activities in Canada, or Québec, and has a local union or branch in
Canada, or Québec, at that time
A
non-resident person is considered to be a resident of Canada, or Québec
1.4.
Carrying on business in
Canada
Even
if a person does not have a PE in Canada, they can still be considered to be
carrying on business there. The question of whether a person is conducting
business in Canada is factual and necessitates taking into account all
pertinent information. The factors determining whether a non-resident person is
carrying on business in Canada for GST/HST purposes in a particular situation
are several that include not only the business activities but also the person’s
intentions
Any
occupation, trade, manufacturing, or project of any type is considered a
business, regardless of whether it is carried out for financial gain. Any
regular or ongoing action involving the provision of property through a lease,
license, or other such arrangement is also included. An employee is not
included in this definition
The definition of business encompasses not just the above mentioned examples but also the widely recognized definition of business. Operating a business entails conducting operations on a regular or continuous basis. Every case is assessed according to its unique facts, including the person's background and goals. GST/HST Technical Information Bulletin B-090 “GST/HST and Electronic Commerce” published in 2002, offers a thorough examination of the nature of products supplied online, and the application of the place of supply rules, zero-rating of supplies to non-resident, and non-resident registration requirements.
2. E-commerce suppliers and simplified registration systems
The large
amount of e-commerce transactions that evolved gradually and exist in today’s
economy was a challenging domain for the pre-2019 GST/HST and QST systems to handle.
According to pre-2019 regulations, many non-resident suppliers were not required
to register for GST/HST, or QST, as they did not have a significant presence in
Canada, or Québec, and were not considered to be carrying on business in either
of the jurisdictions. Canadians, moreover, were finding it easy to purchase
taxable goods from these suppliers without paying the GST/HST, or QST, thanks
to the economy's growing digitalization.
Pre-2019
regulations only required Canadian consumers to self-assess GST/HST on imports
of intangibles and services from unregistered non-resident suppliers, under
Division IV of the Excise Tax Act (ETA), which hardly ever happened. In
contrast, GST/HST (and QST, in some cases) is typically applied to tangible
goods at the time of import under Division III of the ETA. While similar
purchases from Canadian registered suppliers were subject to the applicable GST/HST,
consumers were able to frequently make online purchases from the non-resident
suppliers, and through digital platforms, without paying GST/HST (or QST). Unregistered
non-resident suppliers had, therefore, a competitive edge over their Canadian
and Québec counterparts as a result of this unfairness. Additionally, this
caused both jurisdictions to lose a sizable amount of tax revenue. There were
also comparable problems with taxable short-term accommodations offered by
unregistered vendors via online platforms, as well as taxable goods bought from
non-resident vendors who use a Canadian fulfillment warehouse to ship goods to
another location in Canada.
New
GST/HST and QST regulations for e-commerce transactions were introduced by the
federal and Québec governments to address these problems. The new regulations
included mandatory registration requirements and simplified registration
processes for specific non-resident suppliers of goods, services, and
intangibles. This effort was spearheaded by Québec, which implemented the QST specified
registration system in 2019 for specific non-resident suppliers who sell
taxable goods to customers in Québec.
Suppliers
of intangible personal property and services in Québec were required to
register under a specific registration system under the first set of QST e-commerce
measures when the total consideration for all taxable supplies made to persons
in Québec, who could be deemed consumers, surpasses $30,000. Furthermore, non-resident
digital platforms that facilitate the distribution of taxable intangible
personal property or services must register under the specified system if the
supplies are made to Québec consumers and the consideration for those supplies
exceeds $30,000. Any online platform that permits the transmission of taxable
supplies of intangible personal property or services (such as streaming
services for movies and sports events) to specified Québec consumers is
considered a digital platform for these purposes. However, a digital platform
is exempt from the stated registration requirements if it only offers access to
a payment system or advertising services (for example, by displaying links to
websites of non-resident suppliers).
Similarly,
when the value of the consideration for taxable supplies surpasses the $30,000
threshold, non-resident suppliers (of Québec) who are based in Canada and
provide taxable supplies of goods in Québec to persons who are reasonably
deemed to be consumers must also register under the specified registration
system. The specified system and the general rules do not require non-residents
of Québec who are located outside of Canada and who only make taxable supplies
of physical goods and who are not otherwise required to register (i.e., under
the general rules) to register for QST.
Registrants
operating under the specified system must collect QST on taxable supplies in
Québec supplied to a "specified Québec consumer." This term refers to
persons who are not registered for QST purposes and whose primary residence is
situated in Québec. The threshold for specified registration, set at $30,000,
is determined by the qualifying taxable supplies made to persons reasonably
identified as Québec consumers over the previous 12 months. Specified
registrants are obligated to verify a consumer's primary residence by acquiring
two non-contradictory pieces of information, which may include the billing or
personal address, the IP address of a device utilized for online content
streaming, or details related to a SIM card. In instances where such
information is unattainable, Revenu Québec may permit an alternative method of
verification. A penalty is imposed on any specified Québec consumer who
provides false information to evade QST payment on a transaction, calculated as
the greater of $100 or 50% of the QST due. The QST specified registration
system was implemented on January 1, 2019, for non-resident suppliers situated
outside of Canada, and on September 1, 2019, for non-resident suppliers situated
in Canada.
Numerous
concerns were raised regarding Revenu Québec's capacity to enforce the new
measures upon the implementation of the specified registration system for the
QST. However, the initiative has been predominantly successful, as a
significant number of non-resident retailers and digital platform operators
have complied by registering for and collecting the QST as required. In fact,
the Canadian federal government appears to have utilized the QST System as a
model in the development of its own simplified registration and remittance
system for the GST/HST
New measures for GST/HST concerning e-commerce were introduced in the fall of 2020. These measures closely resemble those already established for QST, but the federal proposals advanced further by tackling challenges associated with supplies linked to Canadian fulfillment warehouses and short-term accommodation platforms. In response, Québec announced in its 2021 budget its intention to implement these additional measures for QST and to legislate any necessary adjustments to ensure the two systems were harmonized. Shortly thereafter, the 2021 Federal budget proposed amendments to the GST/HST e-commerce measures, prompting Québec to align its approach once more. The GST/HST measures took effect for supplies where the payment was due (or made prior to being due) on or after July 1, 2021. From that date, the e-commerce regulations and the simplified and specified registration requirements were nearly identical for both GST/HST and QST purposes.
3. Non-residents suppliers and operators of distribution platforms
Non-resident
vendors and operators of distribution platforms that provide taxable digital
products or services to consumers in Canada, or Québec, without being
considered to be carrying on business in Canada, or Québec, must register under
the GST/HST simplified registration system, or the QST specified registration
system, as applicable, if their taxable supplies exceed, or are anticipated to
exceed, $30,000 within a 12-month timeframe
For the purposes of this regulation, persons registered for GST/HST, or QST, under the general rules are classified as businesses, and all other persons are deemed consumers. Consequently, suppliers registered under the simplified or specified systems are not required to collect GST/HST, or QST, on taxable supplies made to registrants of GST/HST, or QST.
4. Supplies via Canadian fulfillment centers and distribution
warehouses
To enhance delivery efficiency, numerous distribution platform operators utilize Canadian fulfillment centers to house products from non-resident vendors. In the past, i.e. pre-2019, if a non-resident vendor was not deemed to be carrying on business in Canada, or Québec, there was no obligation to register for, or collect, GST/HST, or QST, on taxable sales by a distribution platform operator, despite the fact that the products might be dispatched from a Canadian fulfillment center to another location within Canada. This situation created a competitive edge for unregistered non-residents vendors compared to registered resident vendors, leading to GST/HST, and QST, revenue losses equivalent to:
Or,
In order to tackle both concerns, regulations were implemented mandating that distribution platform operators, regardless of their residency status, must register for GST/HST, or QST, in accordance with the general provisions. Additionally, these operators are required to collect GST/HST, or QST, on the sale of taxable goods in Canada, or Québec, that are transacted through their platforms by any unregistered vendors, whether they are residents or not, provided that the goods were either stored in a fulfillment warehouse located in Canada, or Québec, or dispatched from a site within Canada, or Québec.
Distribution
platform operators are deemed as the supplier when their role in a transaction
involving an unregistered vendor goes beyond mere advertising or payment
processing. Furthermore, these operators must adhere to reporting obligations
concerning the actions of third-party vendors who sell products via their
platforms. Likewise, fulfillment warehouses and businesses are mandated to
submit specific information to the CRA, and Revenu Québec, about their
operations, which includes an annual information return for registrants. This
information must also encompass details about non-resident vendors receiving
services and the goods held on behalf of these clients.
Platform
operators and third-party suppliers share the liability for the collection and
remittance of GST/HST, and QST, when a third-party supplier, such as an
unregistered non-resident vendor, submits inaccurate information to the
platform operator. Nevertheless, if a platform operator reasonably, and in good
faith, relies on the information given by a third-party supplier, it is relieved
from this liability to the degree that it did not collect and remit the tax.
Non-resident vendors who maintain inventory in fulfillment warehouses located in Canada, or Québec, or who dispatch goods from a Canadian, or Québec, site must register for GST/HST, or QST, in accordance with the general regulations. They are obligated to collect tax on taxable sales of their products to both businesses and consumers. The registration obligations for distribution platform operators, and non-resident vendors, are applicable when the total of qualifying taxable supplies (excluding zero-rated supplies) to unregistered customers surpasses, or is anticipated to surpass, $30,000 within any 12-month timeframe.
5. Platforms for Short-term accommodation
Digital
accommodation platform operators, such as Airbnb and VRBO, are required to
register for, and collect, GST/HST, and QST, on almost all supplies of
short-term rentals made through their platforms. This is part of measures
intended to ensure the consistent application of GST/HST, and QST, to supplies
of taxable short-term accommodations (i.e., stays for a period of less than a
month) and to eliminate any potential competitive advantage for unregistered
suppliers.
When
a property owner, or the person in charge of making the rental available, is
not registered for GST/HST, or QST, accommodation platform operators are
considered the supplier of short-term rentals made accessible by their
platforms, much like the requirements for supplies through fulfillment
warehouses. Individuals who merely offer advertising or payment processing
services via a website are not regarded as operators of accommodation platforms
for these purposes. As is customary, registered providers of short-term lodging
are required to report taxes on their taxable supplies, even if those supplies
are made available by digital platforms.
If
an operator of a digital accommodation platform facilitates or anticipates
facilitating the supply of more than $30,000 in taxable short-term
accommodations in Canada (or Québec for QST purposes) on behalf of unregistered
suppliers over a 12-month period, they must register for taxes. For this
reason, non-resident accommodation platform operators who do not conduct
business in Canada or Quebec can use the GST/HST simplified registration and
QST specified registration systems. Once more, non-resident accommodation
platform operators only collect tax on supplies made to consumers (i.e.,
individuals who are not registered for GST/HST or QST) under the simplified and
specified registration systems.
Platform operators are not required to collect tax on service fees paid to unregistered property owners or third-party providers in connection with the provision of taxable short-term accommodations made possible by their platform, but they are required to collect tax on any guest fees they charge for taxable short-term accommodations. Operators of platforms for short-term accommodation registered under the specified or the simplified systems must also maintain records and submit required data about platform usage to Revenu Québec and the CRA.
6. Other considerations
6.1.
Electronic registration
Both
the CRA and Revenu Québec have set up online services to handle registrations
under the simplified and specified systems, file the returns, and enable
electronic tax remittance through their web portals, in line with the trend
towards digitization. In order to help avoid potential compliance problems,
Revenu Québec has also promised to provide a way to ascertain whether
non-resident suppliers are registered under the specified system.
6.2.
Tax collected in error
Tax
collected in error from a registered buyer under the general rules by a vendor
register under one of the simplified systems is technically not recoverable by
the buyer as an input tax credit or refund in their returns. Since there is
currently no simple way to determine whether tax has been collected under one
of the simplified systems, this can be confusing for registered buyers (who are
not consumers) and could expose them to improperly claimed input tax credits or
refunds. In these cases, the vendor ought to reimburse the incorrectly
collected tax.
6.3.
Availability of input tax
credits and refunds
The
inability to claim input tax credits or refunds for tax paid on expenses
incurred in Canada or Quebec is disadvantageous for non-resident suppliers and accommodation
platform and distribution operators who register under the GST/HST simplified
registration system, or under the QST specified registration system, even
though they are still obliged to collect tax from customers. In order to
benefit from the available input tax credits and refunds, businesses that incur
large expenses in Canada or Québec can benefit from registering for GST/HST or
QST under the general rules.
In
this sense, if a non-resident supplier meets the requirements for voluntary
registration and is subject to simplified or specific registration
requirements, it may choose to register for GST/HST, or QST, under the normal
rules. If, moreover, a non-resident chooses to register for QST under the
general rules, it must also register for GST/HST under the normal rules.
6.4.
Documentation
The
same documentation and record-keeping requirements that apply to registrants
under the general rules also apply to non-resident suppliers registered under
the simplified and specified registration systems.
6.5.
Eligible deductions from
net tax
Under
the GST/HST simplified registration system, registrants are allowed to give
qualified consumers HST point-of-sale rebates. In a similar vein, registrants
may recoup tax paid when a customer's payment is written off as a bad debt
under both the GST/HST simplified and QST specified systems.
6.6.
Compliance issues
It
can occasionally be challenging for a non-resident supplier or distribution
platform operator to ascertain with certainty the residency of its clients and
whether the $30,000 registration threshold has been or will be exceeded in a
given jurisdiction, depending on the systems used to make or facilitate taxable
supplies in Canada or Québec. Smaller businesses may find it more difficult to
comply with this requirement.
6.7.
Administrative tolerance
Although
both the CRA and Revenu Québec anticipate that businesses will adhere to the
e-commerce regulations, both tax authorities have indicated a willingness to
cooperate with businesses to ease compliance and demonstrate administrative
tolerance, given the possibility of complications and a desire to promote
non-resident registration. For instance, during a 12-month transitional period that
began on July 1, 2021, the CRA stated that it will use its discretion in
administering the measures in cases where a company can demonstrate that
reasonable measures have been taken to meet its new obligations.
Works Cited
1. Canada Revenue Agency. GST/HST Policy Statement P-216 "Registration of a Partner". Canada Revenue Agency publications. [Online] April 8, 1998. [Cited: July 1, 2024.]
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-216/registration-a-partner.html.
2. —. GST/HST memorandum 2.1 “Required registration”. Canada Revenue Agency publications. [Online] May 1999. [Cited: September 04, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/2-1/required-registration.html.
3. —. GST/HST memorandum 4.5.1 "Exports - Determining Residence Status". Canada Revenue Agency publications. [Online] January 1998. [Cited: September 05, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/4-5-1/exports-determining-residence-status.html.
4. —. GST/HST memorandum 3.4 "Residence". Canada Revenue Agency publications. [Online] April 2000. [Cited: September 05, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/3-4/residence.html#_10.
5. Ministère de l'Emploi et de la Solidarité sociale. "Presumption of Residence in Québec – Canadian Residents Who Have a Permanent Establishment in Québec". Les Publications du Québec. [Online] June 27, 2024. [Cited: September 05, 2024.]
https://www.publicationsduquebec.gouv.qc.ca/fileadmin/produits_en_ligne/Fiscalite/pdf/T0_1A11_1T1R2BULB.pdf.
6. Canada Revenue Agency. RC4027(E) Rev.23 "Doing Business in Canada – GST/HST Information for Non-Residents". Canada Revenue Agency publications. [Online] January 16, 2024. [Cited: September 07, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/rc4027/doing-business-canada-gst-hst-information-non-residents.html#P268_16988.
7. —. GST/HST Policy Statement P-051R2 "Carrying on business in Canada". Canada Revenue Agency publications. [Online] April 29, 2005. [Cited: September 07, 2024.] https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/p-051r2/p-051r2-carrying-on-business-canada.html#P73_7305.
8. Department of Finance Canada. Fall Economic Statement 2020. Department of Finance Canada Publications and Reports. [Online] November 30, 2020. [Cited: July 1, 2024.] https://www.budget.canada.ca/fes-eea/2020/report-rapport/toc-tdm-en.html.
9. —. Budget 2021. Department of Finance Canada Publications and Reports. [Online] April 19, 2021. [Cited: July 1, 2024.] https://www.budget.canada.ca/2021/report-rapport/toc-tdm-en.html.
10. Government of Canada. "GST/HST and e-commerce". Government of Canada GST/HST Taxes. [Online] November 07, 2022. [Cited: July 2, 2024.] https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-specific-situations/e-commerce.html#rgstr.
11. Canada Revenue Agency.
GST/HST memorandum 2.2 "Small suppliers". Canada Revenue Agency
publications. [Online] May 1999. [Cited: July 2, 2024.]
https://www.canada.ca/en/revenue-agency/services/forms-publications/publications/2-2/small-suppliers.html.
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