Canadian Tax Policies, GST & HST Rules for E-Commerce Businesses
" The slightest adjustments to your daily routines can dramatically alter the outcomes in your life"
– Darren Hardy
As the quote says, it doesn't take much to change the outcomes of your life. Save $25 a month for 10 years with an interest rate of 2% and you'll have $3,348.52. Now budget $2 per day and the outcome will triple.
FEDERAL BUDGET PROPOSED ACTIONS
This measure will apply with respect to existing as well as new borrowings.
The following rules will apply:
- Tax EBITDA will exclude, among other things, dividends to the extent they qualify for the inter-corporate dividend deduction or the deduction for certain dividends received from foreign affiliates.
- Interest expense and interest income will include amounts that are legally interest, and certain payments that are economically equivalent to interest, and other financing-related expenses and income.
- The measure of interest expense will exclude interest that is not deductible under existing income tax rules, including the thin capitalization rules, which will continue to apply.
- Interest expense and interest income related to debts owing between Canadian members of a corporate group will generally be excluded.
The new rules will also apply to trusts, partnerships, and Canadian branches of non-resident taxpayers.
Interest denied under these rules will carry forward for up to twenty years or carried back for up to three years. Denied interest may be allowed to be carried back to taxation years that begin prior to the effective date of this rule.
These proposed rules also include a "group ratio" rule that will allow a taxpayer, in certain circumstances, to deduct interest in excess of the fixed ratio of tax EBITDA calculated on a consolidated basis. For purposes of the group ratio rule, the parent company and all of its subsidiaries that are fully consolidated in the parent's audited consolidated financial statements will be included in the calculation.
Draft legislative proposals are expected to be released for comment in the summer.
APPLICATION OF GST/HST TO E-COMMERCE
The legislation introduced in the 2020 Fall Economic Statement has been included with some qualifications and clarifications.
A reminder that this legislation will require non-residents and distribution platform operators to register for the GST/HST under a simplified system when they are selling to consumers in Canada. This includes sales of digital supplies and services, short-term accommodations in Canada and the supply of goods through online platforms.
SAFE HARBOR RULES
Where a platform operator is obligated to collect and remit GST/HST on supplies they facilitated for a third-party who is not registered for GST/HST, they are likely to rely on information provided by third parties. This may not be accurate information relative to the information requirements needed for GST/HST purposes. To avoid this situation, the Budget proposes rules that will:
- impose joint and several liability on a platform operator and a third-party supplier for the collection and remittance of GST/HST, if the third-party supplier provides false information to the platform operator
- limit the liability of a platform operator for failure to collect and remit tax, if the platform operator reasonably relied on the information provided by a third-party supplier.
GST/HST registered suppliers will be eligible to deduct amounts for:
- bad debts; and
- certain provincial HST point-of-sale rebates to purchasers from the GST/HST they must remit.
SIMPLIFIED SYSTEM – SMALL SUPPLIER THRESHOLD
The $30,000 small supplier threshold proposed under the simplified GST/HST system provides if the amount is exceeded in a 12-month period, registration is required. The Budget proposes to exclude zero rated sales as there would not be any tax to remit.
PLATFORM OPERATORS INFORMATION RETURN
Platform operators will be required to file an information return if they facilitate a supply of Canadian short-term accommodations, or a sale by a non-registered vendor of goods located in a fulfillment warehouse in Canada.
The amendment in Budget 2021 clarifies that the requirement to file an annual information return applies only to platform operators that are registered or are required to be registered for the GST/HST. This will reduce the compliance requirement for some.