Canada: Canada's Tax Committee On Electronic Commerce Reports

Last Updated: May 25 1998


On the same day as most Canadians were concentrating on filing their 1997 personal income tax returns, the Revenue Canada Advisory Committee on Electronic Commerce ("the Committee") had its report ("the Report") issued by the government. The following discussion provides some background information on electronic commerce ("E-Commerce") and highlights the Committee's general recommendations. Subsequent articles will comment on some of the seventy-two detailed Report recommendations in the area of income taxes, customs duties and tariffs.


Significant advancements and innovations in information and computer technologies coupled with growing domestic and international trade have transformed the worldwide economic environment. Electronic commerce is the foundation of this transformation, and represents the most radical force of change that nations have encountered since the industrial revolution. It is affecting every economic sector as well as social activities and government operations.

E-Commerce can be broadly defined as the delivery of information, products services or payments by computer, telephone or other automated media. This definition encompasses many kinds of business activities that are being conducted electronically, and means much more than merely the purchasing of goods and services through electronic means.

E-Commerce includes all types of commercial transactions conducted by electronic means using computers and telecommunications networks. This would include:

  • electronic banking;
  • electronic purchasing and restocking systems;
  • electronic payment systems;
  • all forms of trade in digitized goods and services; and
  • all commercial transactions conducted by the Internet, telephone, and fax.

E-Commerce has proven to be an invaluable tool for enhancing business operations, and for creating opportunities for growth. However, it has also given rise to important questions and challenges that are particularly relevant to the issues of taxation. Increased use of electronic systems in commercial activities, including the Internet, makes it important that all taxation authorities review the administration of their tax systems. This must be done to ensure that tax laws are applied appropriately and that the integrity of the tax base is maintained in an E-Commerce environment.

For example, commercial activity through the Internet poses problems for determining where an activity took place. Moreover, since such activity leaves no paper trail, problems arise that are similar to those raised by the underground economy. E-Commerce also creates difficulties for tax administration in terms of identifying the governmental jurisdiction(s) which has the authority to tax incomes and transactions conducted by way of E-Commerce.

E-Commerce is putting pressure on traditional approaches and rules involved in tax administration. All tax authorities must deal with the enhanced evasion and avoidance opportunities presented by electronic commerce.

Advisory Committee on Electronic Commerce

The Canadian Minister of National Revenue established the Advisory Committee on Electronic Commerce in April 1997 to examine the implications of E-Commerce on tax administration. The Committee's April 30, 1998 Report confirms that certain fundamental principles of tax policy and administration are likely to be called into question as a result of the growth of E-Commerce through the convergence of information and communications technology. The Report contains a total of seventy-two detailed recommendations in the area of income taxes, commodity taxes, customs duties and tariffs. (Specific comments on a number of these detailed recommendations will be the subject of subsequent articles.) In addition, the Report made some general recommendations for government aimed at promoting the development of E-Commerce in Canada.

General Recommendations

The Committee's general recommendations can be summarized under four headings as outlined below:


Since E-Commerce is driven by market forces, and by new and rapidly developing technologies, the private sector should lead in its management.

By fostering a favourable business and regulatory environment, Canada can assure itself of a leadership position in the new world of E-Commerce.

The Government of Canada should affirm its commitment to the goal of Canada becoming a world leader in E-Commerce, and confirm its belief in the central role of the private sector in accomplishing this objective.

Tax and Regulatory Environment

In cooperation with other governments in Canada, the Government of Canada should assist business in the pursuit of E-Commerce activities by providing a tax and commercial environment that would be viewed as a model of cooperation throughout the world.

Canada should take the lead to ensure a tax neutral position with regard to E-Commerce transactions since new or additional taxes would remove the incentive for corporations to continue conducting business in Canada and dampen the future growth of the Canadian economy.

Revenue Canada and the Government of Canada should continue to study and measure the points at which there is a risk of loss of tax revenue, and the extent of those losses, resulting from E-Commerce activities before any new policies or taxes are introduced.

Policy and Legal Environment

Governments should create a favourable policy and legal environment for the growth of E-Commerce and ensure that the network and physical infrastructure requirements for E-Commerce figure prominently in policies and programs.

All levels of government in Canada and key players in the private sectors should work co-operatively to build trust in the electronic marketplace and establish clear policies on the recognition of digital signatures, the use of encryption, and protection of consumer rights and personal information.

Immediate action should be taken by Revenue Canada and the Government of Canada to bolster consumer confidence in the electronic economy and to clarify and communicate the application of existing policies and practices to E-Commerce activities.


Revenue Canada and the Government of Canada should promote consistency in E-Commerce policies among all levels of government in Canada, and among national governments around the world.

In order for Canada to play a lead role in developing a clear set of international rules for transnational E-Commerce, Revenue Canada should work to ensure the success of the upcoming Organization for Economic Cooperation and Development ("OECD") Ministerial Conference (Ottawa, Canada - 7 to 9 October 1998), especially in relation to taxation issues.

Consistent with the theme of private sector leadership, Canadian business and industry associations should continue to work with their international colleagues in the management, promotion, and development of E-Commerce.

These general recommendations of the Committee are commendable. With the concentrated co-operative efforts of all parties - public and private, domestic and international - we all hope they can be attained!

The information provided herein is for general guidance on matters of interest only. The application and impact of laws, regulations and administrative practices can vary widely, based on the specific facts involved. In addition, laws, regulations and administrative practices are continually being revised. Accordingly, this information is not intended to constitute legal, accounting, tax, investment or other professional advice or service.

While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting a Coopers & Lybrand professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your Coopers & Lybrand advisor, or: David W. Steele, Coopers & Lybrand, 145 King Street West, Toronto, Ontario M5H 1V8 Canada, Fax: 1-416-941-8415, E-mail: Click Contact Link
David W. Steele
145 King Street West
Toronto, Ontario  M5H 1V8
Fax:    1-416-941-8415
E-mail:    Click Contact Link 

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