Cross-border digital products or services: GST/HST for digital economy businesses

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GST/HST for digital economy businesses

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Cross-border digital products and services

New rules for digital economy businesses are in effect as of July 1, 2021.

Once you have registered for the GST/HST as required, you are required to charge and collect the tax on the taxable supplies that you make in Canada. The rate of tax that you are required to charge and collect on those supplies is based on the place of supply that determines whether a supply is made in Canada, and the province in which a supply is made.

Who charges and collects the GST/HST

The person who is required to charge and collect the GST/HST on specified supplies made to specified Canadian recipients under this measure can be affected by whether:

those supplies are made directly to those recipients or through a distribution platform, and
the supplier is registered under the simplified GST/HST or under the normal GST/HST regime.

Specified non-resident suppliers

If you are a specified non-resident supplier who supplies digital products or services to specified Canadian recipients and you become registered under the simplified GST/HST regime, whether you are required to charge and collect the GST/HST on those supplies depends on whether you make those supplies directly to those consumers or whether those supplies are made through a distribution platform.

You are required to charge and collect the GST/HST on the supplies of digital products or services that you make directly to Canadian consumers. The distribution platform operator is required to charge and collect the GST/HST on the supplies facilitated through the platform.

If you are a specified non-resident supplier who makes supplies of digital products or services to specified Canadian recipients and you become registered under the normal GST/HST regime, you are required to charge and collect the GST/HST on those supplies, regardless of whether they are made through a distribution platform operator. You are also required to charge and collect the GST/HST on all of your taxable supplies, including digital products or services to specified Canadian recipients, that are considered to be made in Canada under the normal place of supply rules.

Distribution platform operators

If you are a distribution platform operator who is registered for the GST/HST under the simplified GST/HST regime or the normal GST/HST registration regime, you are required to charge and collect GST/HST on the supplies of digital products or services made through your specified distribution platform to specified Canadian recipients by non-resident vendors who are not registered under the normal GST/HST regime (including those registered under the simplified GST/HST regime).

You are not required to charge and collect the GST/HST on the services that you supply to those non-resident vendors in relation to the supplies of digital products and services. You are also required to charge and collect the GST/HST on any supplies of digital products or services that you make directly to Canadian consumers.

You are not required to charge and collect GST/HST on the supplies of digital products or services made through your platform to specified Canadian recipients by non-resident vendors who are registered under the normal GST/HST regime. In this instance, the non-resident vendors who are registered under the normal GST/HST regime are required to charge and collect the GST/HST on these supplies.

A distribution platform operator in respect of a supply of property or a service made through a specified distribution platform is a person other than the supplier or an excluded operator who:

controls or sets the essential elements of the transaction between the supplier and the recipient, or
if that circumstance does not apply to any person, is involved, directly or through arrangements with third parties, in collecting, receiving or charging the consideration for the supply and transmitting all or part of the consideration to the supplier.

In relation to a supply of property or a service, an excluded operator is a person who:

does not set, directly or indirectly, any of the terms and conditions under which the supply is made,
is not involved, directly or indirectly, in authorizing the charge to the recipient of the supply in respect of the payment of the consideration for the supply, and
is not involved, directly or indirectly, in the ordering or delivery of the property or in the ordering or rendering of the service; or
solely provides for the listing or advertising of the property or service or for the redirecting or transferring to a digital platform on which the property or service is offered; or
is solely a payment processor.

Generally, a specified distribution platform is a digital platform through which a person facilitates the making of specified supplies by another person that is a specified non-resident supplier who is not registered under the normal GST/HST regime.

A digital platform generally includes a website, an electronic portal, gateway, store or distribution platform or any other similar electronic interface, but does not include an electronic interface that solely processes payments.

Figure 1

Figure 1 - Text version

A diagram showing who charges and collects GST/HST on specified supplies under the cross-border digital products and services measure. Text version below.

In scenario (1) and scenario (2), the non-resident vendor is required to collect the GST/HST on the specified supplies it makes directly to the specified Canadian recipients.

In scenario (3) and in scenario (4), the distribution platform operator is required to collect the GST/HST on the specified supplies made to the specified Canadian recipients that are facilitated through its platform.

In scenario (5), the non-resident vendor is required to collect the GST/HST on the specified supplies made to the specified Canadian recipients

Safe Harbour Rules

In many cases, a distribution platform operator may rely on information provided by third-party suppliers on the transactions they make for determining whether the platform operator is required to collect and remit tax on the specified supplies it facilitates.

A joint and several, or solidary, liability is imposed on a distribution platform operator and a third-party supplier for the collection and remittance of tax in respect of a specified supply if the third-party supplier makes a false statement to the platform operator. The liability of the distribution platform operator for failure to collect and remit tax in respect of a specified supply in this case is limited if the platform operator did not know and could not reasonably be expected to have known that the third-party supplier made a false statement and relied in good faith on the false statement.

A distribution platform operator is therefore not held liable for failing to collect and remit tax in respect of a specified supply as a result of having relied in good faith on a false statement by a third-party supplier. In this case, the platform operator is relieved from liability to the extent that it did not collect and remit tax (i.e., where it partially collected tax, it remains liable for those amounts) and the third-party supplier that made the false statement is liable for any amounts not collected. A false statement includes a statement that is misleading because of an omission from the statement.

What types of supplies are taxed

You have to charge and collect tax on specified supplies that are generally taxable supplies of intangible personal property or services that you make to specified Canadian recipients. Specified supplies include, but are not limited to:

online subscription-based video or music streaming
mobile apps
E-books
online video gaming
traditional services such as legal and accounting services

There are several types of supplies that are not considered to be specified supplies, including:

supplies that may not be consumed or used in Canada,
supplies that relate to tangible personal property or real property that is situated outside Canada, and
services that are supplied to a person in connection with a supply of short-term accommodation made to the person, and the consideration for which represents a booking fee, administration fee or other similar charge.

A specified Canadian recipient includes a Canadian consumer and a Canadian entity who is not registered under the normal GST/HST regime. It is a recipient of a supply who:

has a usual place of residence that is situated in Canada, and
who has not provided to the supplier or distribution platform operator satisfactory evidence that the recipient is registered under the normal GST/HST regime.

Special place of supply rules for digital products and services

Under the simplified GST/HST regime, there are special place of supply rules that determine whether the digital products or services that you supply are made in Canada, and whether they are made in a participating province.

A specified supply is considered to be made in Canada if the supply is made to a specified Canadian recipient
- GST at the rate of 5% is required to be charged and collected on the supply in this case
A specified supply is considered to be made in a participating province if the supply is made to a specified Canadian recipient and the usual place of residence of the recipient in situated in the participating province.
- HST at the harmonized rate for the participating province is required to be charged and collected on the supply in this case.
If the usual place of residence of the specified Canadian is not situated in a participating province, the supply is considered made in a non-participating province.

As an exception, specified supplies of intangible personal property, or services, that relate to real property, are subject to the normal GST/HST place-of-supply regime.

Disclosing the tax to customers

Under the simplified GST/HST regime you must indicate to your customers, such as on your receipts, invoices or contracts:

the amount paid or payable for your supplies of digital products or services and the GST/HST paid or payable on that amount; or
that the GST/HST paid or payable on those supplies is included in the price.

For information about charging and collecting the GST/HST under the normal GST/HST regime, see Receipts and Invoices.

What rate to charge

The rate of tax that you are required to charge and collect on specified supplies depends on whether they are made in Canada, and if so, whether they are made in a participating province.

Taxable supplies that are made in Canada are subject to the GST at a rate of 5%, or the HST at the harmonized rate if they are made in a participating province.

The current rates of tax are:

5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
13% (HST) in Ontario
15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island

To determine where your specified supplies are made, you must determine the status of your customer and the usual place of residence of your customer.

Determining the status of your customers

Your customer is considered a specified Canadian recipient if:

the usual place of residence of the customer is situated in Canada, and
the customer does not provide you with satisfactory evidence that the customer is registered for the GST/HST under the normal GST/HST regime.

If you obtain the GST/HST registration number of your customer who is registered for the GST/HST under the normal GST/HST regime, you are not required to charge and collect the GST/HST on the specified supply that you make to this customer. If the GST/HST registered customer provides their GST/HST registration number and the GST/HST is still charged and collected, the customer is able to request a refund from you. Any GST/HST paid by the registered customer in such cases is not recoverable by claiming an input tax credit or by filing a rebate application for an amount paid as tax paid in error.

Determining the usual place of residence of your customers

Follow these steps to determine the usual place of residence of your customers:

Step 1: Identify indicators of information in respect of the usual place of residence of your customers, which are generally pieces of information that you obtain in the ordinary course of your operations.

Indicators of information

the home address of the customer
the business address of the customer
the billing address of the customer
the Internet Protocol address of the device used by the customer or similar data obtained through a geolocation method
payment-related information of the customer or other information used by the payment system
the information from a subscriber identity module, or other similar module, used by the customer
the place at which a landline communication service is supplied to the customer; and
any other relevant information that the Minister may specify

Step 2: Then apply indicators of location – Canada and province in respect of your customers to those information indicators to identify their location.

Indicators of information

A Canadian indicator of your customer is an indicator obtained in connection with the supply that reasonably supports the conclusion that the usual place of residence of your customer is situated in Canada.
A foreign indicator of your customer is an indicator obtained in connection with the supply that reasonably supports the conclusion that the usual place of residence of your customer is situated outside Canada.
A participating province indicator of your customer is an indicator obtained in connection with the supply that reasonably supports the conclusion that the usual place of residence of your customer is situated in a participating province.
A non-participating province indicator of your customer is an indicator obtained in connection with the supply that reasonably supports the conclusion that the usual place of residence of your customer is situated in a non-participating province.

Step 3: Using the tables below, apply usual place of residence rules to these location indicators obtained in the ordinary course of your operations to determine if the usual place of residence is in Canada or in a participating province.

The determination of the relative reliability of a particular indicator obtained in the ordinary course of your operations as required under the place of supply rules must be made taking into account the particular circumstances.

Usual place of residence - Canada

Rule	Residence Indicators	Usual place of residence in Canada?
Rule 1	You have obtained two or more Canadian indicators + You have not obtained more than one foreign indicator	Yes
Rule 2	You have obtained two or more Canadian indicators + You have obtained two or more foreign indicators + The Canadian indicators you have obtained are in the circumstances reasonably considered more reliable	Yes
Rule 3	Rule 1 and Rule 2 do not apply. + You have determined that the usual place of residence is in Canada based on a method allowed by the Minister	Yes

Usual place of residence - Participating province

Rule	Residence Indicators	Is the usual place of residence of customer situated in a participating province?
Rule 1	You have obtained one or more addresses that are a home or business address of the customer in a participating province + You have not obtained more than the same number or a greater number of addresses that are a home or business address of the customer in a non-participating province	Yes If those addresses that are in a participating province are all in the same participating province, the usual place of residence is in that participating province. If those addresses that are in a participating province are in two or more participating provinces and if the tax rates for those participating provinces are the same, the usual place of residence is in the participating province among those participating provinces that has the largest population.
Rule 2	The usual place of residence has not been determined under Rule 1. + You have obtained one or more participating province indicators in respect of the customer + You have not obtained the same number or a greater number of non-participating province indicators in respect of the customer that could reasonably be considered to be as reliable in determining a place of residence as those participating province indicators	Yes If those participating province indicators are in respect of the same participating province, the usual place of residence is in that participating province. If those participating province indicators are in respect of two or more participating provinces and the participating province indicators in respect of one of those participating provinces are, in the circumstances, reasonably considered to be more reliable in determining a place of residence, the usual place of residence is in that participating province. If the usual place of residence is not determined in the previous two circumstances and if you have determined that the usual place of residence is situated in one of the participating provinces based on any method that the Minister may allow, the usual place of residence is that participating province. If the usual place of residence is not determined in any of the previous circumstances and if those participating province indicators are in respect of two or more participating provinces, the usual place of residence is in the participating province among those participating provinces for which the tax rate is the lowest or, if the tax rates for those participating provinces are the same, the participating province among those participating provinces that has the largest population.
Rule 3	The usual place of residence has not been determined under Rule 1 or Rule 2. + You have determined that the usual place of residence of the customer is situated in a participating province based on a method that the Minister has allowed.	Yes The usual place of residence is in that participating province.

Examples

Example 1 - Digital supply

A non-resident vendor who is registered under the simplified GST/HST regime supplies subscription-based online music streaming directly to consumers around the world, including Canada.

The vendor supplies a monthly subscription to a particular consumer. In the ordinary course of its operations, the vendor only obtains a billing address and payment-related information from the consumer when the subscription is purchased. These two pieces of information reasonably indicate a geographic location in Ontario, Canada. The vendor does not obtain any other information about the consumer in connection with the supply, including any evidence that the consumer is registered for the GST/HST under the normal GST/HST regime.

In this case, the consumer is considered to have a usual place of residence that is in Ontario, Canada. The vendor is therefore required to charge and collect HST at the rate of 13% in respect of the supply of the monthly subscription since it is made in the participating province of Ontario.

The usual place of residence of the consumer is considered to be situated in Canada since in the ordinary course of its operations the vendor has obtained two Canadian indicators in respect of the consumer and has not obtained more than one foreign indicator in respect of the consumer (Canada Rule 1). It is also considered to be situated in the participating province of Ontario since the vendor has obtained one or more participating province indicators in respect of the customer that are both situated in the same province and has not obtained any other information (Participating Province Rule 2).

Example 2 - Digital supply

The consumer in Example 1 moves from Ontario to British Columbia six months after purchasing the monthly music streaming subscription. The consumer updates their account with the non-resident vendor with a new billing address in British Columbia.

When the next monthly subscription payment subsequently becomes due, the vendor now has a billing address and payment-related information about the consumer that reasonably indicates a geographic location in British Columbia, Canada. The vendor has not obtained any other information about the consumer in connection with the supply, including any evidence that the consumer is registered for the GST/HST under the normal GST/HST regime.

In this case, the consumer is considered to have a usual place of residence that is in British Columbia, Canada. The vendor is therefore required to charge and collect the GST at the rate of 5% in respect of the supply of the monthly subscription since it is made in a non-participating province.

For GST/HST purposes, a separate supply of the subscription is considered to be made for each monthly billing period and so the rate of tax to be charged and collected in respect of each such supply must be determined separately as each subscription payment becomes due.

The usual place of residence of the consumer in this case is considered to be situated in Canada since in the ordinary course of its operations the vendor has obtained two Canadian indicators in respect of the consumer and has not obtained more than one foreign indicator in respect of the consumer (Canada Rule 1). None of the participating province usual place of residence rules apply to determine the usual place of residence of the consumer in this case to be in a participating province. The supply is therefore made in a non-participating province.

Example 3 - Digital supply

A non-resident vendor who is registered under the simplified GST/HST regime supplies e-books directly to consumers around the world, including Canada.

A consumer purchases an e-book from the vendor using a mobile tablet. At the time of purchase, in the ordinary course of its operations, the vendor obtains from the consumer a billing address, payment-related information, and the Internet Protocol address of the device used by the consumer to purchase the e-book. The billing address, and payment-related information reasonably indicate a geographic location in Nova Scotia, Canada. The Internet Protocol address reasonably indicates a geographic location in Mexico (where the consumer is vacationing for a few weeks). The vendor does not obtain any other information about the consumer in connection with the supply, including any evidence that the consumer is registered for the GST/HST under the normal GST/HST regime.

In this case, the consumer is considered to have a usual place of residence that is in Nova Scotia, Canada. The vendor is therefore required to charge and collect HST at the rate of 15% in respect of the supply since it is made in the participating province of Nova Scotia.

The usual place of residence of the consumer is considered to be situated in Canada since in the ordinary course of its operations the vendor has obtained two Canadian indicators in respect of the consumer and has not obtained more than one foreign indicator in respect of the consumer (Canada Rule 1). It is also considered to be situated in the participating province of Nova Scotia since the vendor has obtained one or more participating province indicators in respect of the customer that are both situated in the same province and has not obtained an equal or greater number of non-participating province indicators (Participating Province Rule 2).

Example 4 - Architectural service

A non-resident architect who is registered under the simplified GST/HST regime makes a supply of an architectural service to a Canadian consumer who lives in Ontario. The service relates to real property that is situated in Ontario. The architect performs the service entirely outside Canada.

In the ordinary course of its operations, the architect only obtains a home address in Ontario and payment-related information from the consumer when the architectural service is purchased. These two pieces of information reasonably indicate a geographic location in Ontario. The architect does not obtain any other information about the consumer in connection with the supply, including any evidence that the consumer is registered for GST/HST under the normal GST/HST regime.

The usual place of residence of the consumer is considered to be situated in Canada since in the ordinary course of its operations the architect has obtained two Canadian indicators in respect of the consumer and has not obtained more than one foreign indicator in respect of the consumer (Canada Rule 1). Since the architectural service is a service that relates to real property, it is the normal HST place of supply rules that apply to determine the province in which the supply of the architectural service is considered to be made. Therefore, the supply of the service is made in Ontario because it relates to real property that is situated in Ontario. The architect is therefore required to charge and collect the HST at the rate of 13% in respect of the supply.

Figure 2

Figure 2 - Text version

A diagram showing the place of supply rules under the cross-border digital products and services measure. Text version below.

Depending on who is required to charge and collect the GST/HST, either the special place of supply rules for digital products and services or the normal place of supply rules applies.

A. Specified supplies made directly by a non-resident vendor:

In scenario (1), the non-resident vendor registered under the simplified GST/HST regime, so the special place of supply rules apply and the non-resident vendor is required to charge and collect the GST/HST.

In scenario (2), the non-resident vendor registered under the normal GST/HST regime, so the normal place of supply rules apply and the non-resident vendor is required to charge and collect the GST/HST.

B. Specified supplies made by a non-resident vendor and facilitated by a distribution platform operator who is registered under the simplified or normal registration regime

In scenario (3), the non-resident vendor registered under the simplified GST/HST regime, so the special place of supply rules apply and the platform operator is required to charge and collect the GST/HST.

In scenario (4), the non-resident vendor is not registered under the simplified or normal GST/HST, so the special place of supply rules apply and the platform operator is required to charge and collect the GST/HST.

In scenario (5), the non-resident vendor registered under the normal GST/HST regime, so the normal place of supply rules apply and the non-resident vendor is required to charge and collect the GST/HST.

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Date modified:: 2021-06-30

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