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GST Changes Incoming for Businesses using Fulfillment Centres!
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Per our previous blog, the Government of Canada’s Fall Economic Update has announced new rules which will change the registration and collection regime for fulfillment warehouses (like Amazon) to ensure that vendors collect GST/HST on the final price paid for their goods when they are sold in Canada. This article gives a high-level overview of these specific changes.
The Current Regime
Under the current rules, the government has identified an issue where GST/HST is not consistently charged on the final price of goods sold by non-resident vendors to purchasers in Canada through online “distribution platforms” (and potentially stored in “fulfilment warehouses” in Canada). While applicable duties and taxes apply at the border at the time of importation of the goods, this does not capture a possible increase in price when the goods are ultimately sold to the Canadian end consumer. This is in direct contrast to the situation faced by many Canadian resident suppliers, who generally must collect and remit GST/HST on the final price paid for the goods—putting them at a competitive disadvantage.
The above issue arises because the distribution platform operator and the non-resident vendor are generally not required to charge and collect GST/HST on the sale, on the basis that the non-resident vendor is not “carrying on business” in Canada, and the distribution platform operator is not the supplier of the goods.
The Proposed Changes
The proposed legislation would change this by requiring certain “distribution platform operators” to register for GST/HST and collect it from purchasers in Canada, deeming them to be the supplier of the goods and enabling them to claim certain input tax credits (“ITCs”). There are a couple different aspects to this regime:
First, the proposed subsection 211.21(2) would require that non-resident vendors that make total qualifying supplies of goods in Canada of at least $30,000 register under the traditional GST registration rules (Subdivision D to Division V to the ETA). This registration requirement also applies to “distribution platform operators” for which at least $30,000 worth of qualifying supplies are made through their distribution platform.
“Distribution platform operator”, in this context, means the person, who, through a “specified distribution platform”: (1) controls or sets the essential elements of the transaction between the supplier and recipient; (2) if no one sets the essential elements, the person who is involved with collecting, receiving, or charging the consideration for the supply and transmitting all or part of the consideration to the supplier (this likely captures the traditional Amazon business model); or (3) a prescribed person.
The term “specified distribution platform” further limits the registration requirements to non-residents who operate a “digital platform” which specifically excludes digital services or websites that solely process payments (e.g., PayPal, Square). The framework additionally excludes services that solely provide for the “listing or advertising of the property or service or for the… transferring to a digital platform on which the property or service is offered” (e.g., Craigslist).
These rules only apply in respect of qualifying supplies, namely, certain sales of tangible personal property to be delivered or made available to the recipient in Canada—and excludes (among other things) a supply of tangible personal property sent by mail or courier from the original supplier. The effect of this is to seemingly exclude certain online sales through platforms where the original supplier of the goods ships directly to the consumer (e.g., Etsy).
Conclusions
The takeaway point is that the incoming rules are especially complex and their application turns on the specific facts of both the underlying business supplying the goods and the nature of the digital platform they use to sell the goods to purchasers in Canada. For businesses and distribution platform operators, this is a prime opportunity to seek expert tax advice on these matters before the changes are set to be implemented in July 2021.
Do you require assistance in this area? If so, contact us here.