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Canadian taxpayers must check sales taxes for inaccuracies

According to tax specialists, e-commerce businesses must assess their Canadian sales tax duties to avoid compliance risks and fines.

As federal and provincial tax rates vary, tax directors would do well to invest in automated tax systems and engage in extensive consultation to guarantee compliance with legislation. At a time when firms are experiencing economic uncertainty, the risks of noncompliance might be significant.

In order to prevent compliance problems and fines, tax specialists have urged e-commerce enterprises to evaluate their Canadian sales tax requirements immediately.

Concerns have intensified following a spate of recent changes to goods and sales tax (GST), harmonised sales tax (HST), and provincial sales tax laws (PST). These restrictions have also targeted e-commerce and online marketplaces.

According to Colleen Ma, a partner at Miller Thompson LLP in Calgary, repeated revisions to sales tax legislation have caused confusion among businesses.

“It’s tricky from an international perspective, for sure. But even from a Canadian [perspective, it’s tricky,” says Ma. “So even across the country, it is confusing people.”

John Frim, director of indirect tax at EY in Ontario, explains that these taxes on international online marketplaces and e-commerce are all relatively new provincial and federal requirements.

These include British Columbia's decision, effective July 1, 2022, to apply a new category of taxable services to online marketplace services.

“It’s [the taxes] really because non-resident e-commerce businesses that were not conducting their business in Canada had a sales tax advantage over Canadian resident e-commerce businesses. Additionally, the federal and provincial governments were not receiving sales taxes from many non-resident e-commerce companies,” says Frim.

According to him, the laws target non-resident marketplaces and e-commerce companies that sell to Canadian customers and other end users. In the past, these vendors were not required to register for Canadian sales tax, but the new regulations have altered this.

“The first thing that most non-resident businesses look at is GST and HST, but they may not realise that certain provinces have similar legislation that has only recently been introduced,” says Frim.

Tax leakage

The Canada Revenue Agency (CRA) has enacted new measures to combat tax leakage as a result of the expansion of e-commerce and cross-border transactions. This has led in a surge of legislation that attempts to regulate ecommerce and online markets across provincial and international borders.

On July 1, online marketplaces and intra-business activity involving physical property became taxable. British Columbia approved a new category of taxable services for online marketplace services on the same date.

In December 2021, Manitoba implemented its own retail sales tax (RST) to include online sales platform owners and online retailers. This would be expanded to include internet streaming services, music, and television programmes.

In January 2020, Saskatchewan was the first jurisdiction to implement a PST charge on e-commerce and online marketplaces.

The inconsistent federal and provincial sales tax rates across the country, which went into effect at different periods and at different rates, have also been a major concern. This has raised the compliance burden on firms.

In addition, provincial revisions were implemented at separate dates, resulting in mismatched rates in British Columbia, Manitoba, and Saskatchewan.

The GST and HST are imposed to both services and goods at rates ranging from 5 percent to 15 percent, depending on the province where the supply is made.