On April 19, 2021, the federal budget was tabled by Deputy Prime Minister and Finance Minister Chrystia Freeland ("Budget 2021").
Budget 2021 confirmed the measures first announced on November 30, 2020 in Supporting Canadians and Fighting COVID-19: Fall Economic Statement 2020 (the "FES 2020") regarding e-commerce transactions and the digital economy, but announced some amendments to the previously-released draft legislation. It also provided details regarding the proposed digital services tax ("DST") that was first announced in the FES 2020.
Additionally, Budget 2021:
- made changes to the information requirements to claim an input tax credit ("ITC");
- expanded the availability of the new housing rebate;
- increased the rate of excise duty on tobacco, set out a framework for an excise duty on vaping products, and clarified eligibility to claim the provincial-use rebate for goods purchased by provinces;
- introduced a luxury tax on the retail sale of new luxury cars (over $100,000), private aircraft (over $100,000), and pleasure boats (over $250,000);
- announced a proposed new national 1% tax on non-resident, non-Canadian owned residential real estate considered to be vacant or underused (details expected in the coming months); and
- announced several administrative measures.
This report summarizes the GST/HST and e-commerce, DST, ITC, and new housing rebate measures.
GST/HST and E-Commerce
We previously reported on the GST/HST measures targeted at the digital economy. Generally, the measures first announced in the FES 2020 affect non-resident vendors that do not carry on business in Canada, online marketplace facilitators / operators of distribution platforms, fulfilment businesses, online accommodation platform operators, and third-party property owners.
Budget 2021 confirms that draft amendments that were released with the FES 2020 will remain largely unchanged and that the measures will come into force on July 1, 2021. However, after considering comments from stakeholders, some amendments to those proposals and associated draft legislation will be made.
- Safe harbour rules. Third-party suppliers will be jointly and severally, or solidarily, liable with a platform operator for the collection and remittance of tax where the third-party supplier provides false information to the operator. Further, the liability of a platform operator will be limited where the platform operator reasonably relied on the information provided by a third-party supplier.
- Eligible deductions. A supplier of digital products or services that is registered under the new simplified GST/HST framework will still be eligible to deduct amounts for bad debts and claim certain rebates (e.g., provincial HST point-of-sale rebates).
- Threshold amount determination. Taxable supplies of digital products or services that are zero-rated will not be included in the calculation of the $30,000 threshold amount for determining whether a non-resident vendor or platform operator is required to register under the new simplified GST/HST framework.
- Platform operator information return. For platform operators that are required to file an annual information return, only those platform operators that are registered or that are required to be registered for GST/HST must complete this filing.
- Authority for the Minister to register a person. Similar to the authority of the Minister to register a person under the existing GST/HST framework, the Minister will have the authority to register a non-resident vendor or platform operator that is required to register under the proposed simplified framework.
Budget 2021 also states that if the affected businesses and platform operators show they have taken reasonable steps to comply with these measures but are unable to meet their obligations for operational reasons, the Canada Revenue Agency will, for a 12-month "transition period", take a "practical approach" to compliance.
Digital Services Tax
The imposition of a DST was first announced in FES 2020. While Canada would prefer for a multilateral approach, it is proposed that a DST be implemented effective January 1, 2022 until an acceptable multilateral approach comes into effect for the impacted businesses.
The following summarizes some of the details announced in Budget 2021:
- Rate and base. The tax rate will be 3% on in-scope revenue. In this context, "revenue" will not include any applicable VAT or sales tax. The DTS will only apply to in-scope revenue associated with Canadian users in excess of a $20 million threshold for an entity or business group.
- In-scope revenue, revenue sourcing, and user location. The DST will apply to certain digital services that are reliant on the engagement, data, and content contributions of Canadians. This includes revenue from online marketplaces, social media, online advertising, and user data. Where the revenue of an entity is related to both activities within the scope of the DST and other activities, the in-scope revenue associated with users in Canada will need to be determined on a reasonable basis. Budget 2021 sets out several revenue sourcing principles. The ordinary location or place of business of the user will be based on information generally available to the digital service provider, such as IP address or billing address.
- Taxpayers. It is proposed that the DST will apply to large foreign and domestic businesses, irrespective of business vehicle (e.g., corporation, partnership, trust). The DST will apply in a particular calendar year to an entity, or business group, with global revenue of ?750 million or more in the previous calendar year and in-scope revenue associated with Canadian users of more than $20 million in the particular calendar year.
- Treatment or income tax purposes. The deductibility of DST will be determined in accordance with general principals. DST liability will not be eligible for a credit against Canadian income tax payable.
- Administration. A business that is subject to DST will be required to file an annual return and make one annual payment. It is proposed that the reporting period be the calendar year. For business groups, one member can be designated to file the DST return and pay the DST liability on behalf of the other members. Further, it is proposed that each member of the business group will be jointly and severally liable for DST payable by any other member of the group.
Stakeholders are invited to submit written representations by June 18, 2021. It is expected that draft legislation will be released this summer.
Claiming Input Tax Credits
To claim an ITC, certain information requirements must be satisfied. The amount and type of information required in respect of a particular supply depends on the amount paid or payable in respect of the supply.
The name of the supplier or intermediary, their GST/HST registration number, and the amount of GST/HST charged will now be required in respect of supplies of $100 or more (up from $30). The recipient's name, terms of payment, and description of each property or service is now required in respect of supplies of $500 or more (up from $150).
One of the required pieces of information for supplies in excess of (now) $100 is the GST/HST number of the supplier or an intermediary. Generally, an "intermediary" is a person that acts as an agent of the supplier, or a person that causes or facilitates the making of the supply by the person. Budget 2021 proposes to allow a billing agent to be treated as an intermediary for purposes of the ITC information rules.
New Housing Rebate Conditions
Budget 2021 proposes to expand the eligibility of the new housing rebate. Under the existing rules, where two or more individuals purchase a new home together, each of them must satisfy the condition that the individual is purchasing the new home for use as their primary residence or as the primary residence of a relation. It is proposed that the new housing rebate be available if any one of the purchasers meets this condition.
This proposed change would also apply in respect of owner-built homes, co-op housing shares, and homes constructed on leased land.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.