The Canadian province of British Columbia (B.C.) is the latest tax jurisdiction where new rules taxing foreign-supplied digital services went live. The rules in B.C. went live on April 1, 2021.
The B.C. government had previously placed their plans on hold. As a result of British Columbia's COVID-19 Action Plan, the expansion of tax registration requirements to foreign suppliers of digital services had been postponed. The original introduction date was July 1, 2020. The postponement also applied to Canadian sellers of goods.
In early September the B.C. Ministry of Finance issued a notice confirming that Provincial Sales Tax (PST) at a rate of 7% must be applied on foreign-supplied digital service sales to B.C. residents from April 1, 2020.
The original taxation move was announced in mid-February during the province’s 2020 Budget. The detail was included in this section of the B.C. budget (updated on September 2 to apply new date):
“Effective April 1, 2021, Canadian sellers of goods and Canadian and foreign sellers of software and telecommunication services are required to register to collect PST if specified B.C. revenues exceed $10,000.”
This information means that BC’s population of over 5 million is the latest global region to change taxation rules relating to the consumption of digital content from overseas.
Note the inclusion of a sales threshold of CAD$10,000 in the B.C. budget quote above. For context, back in January 2019, Québec included a CAD$30,000 threshold in its Québec Sales Tax reform while there is no sales threshold in Saskatchewan.
In a statement quoted by Canada's Global News website, the B.C. Ministry of Finance gave some context to this taxation amendment, one that reflects the reality of these global taxation reforms:
“B.C. has had a sales tax in place since 1948 — that has not changed. However, as people have shifted to buying more and more goods and services online, legislation in many jurisdictions hasn’t kept pace. Clarifying registration requirements will future-proof our tax system as the shift to digital purchasing continues.”
Such rules are also typically introduced as a means to raise revenue for tax authorities across the globe. According to CBC news British Columbia "estimates the tax will generate CAD$11 million for the 2020/2021 fiscal year and CAD$16 million for the following fiscal year."
Here at Taxamo, we always believed that there would be a federal tax rule change, a view that was further bolstered by the B.C. sales tax reform.
We were proved correct when the Canadian Revenue Agency (CRA) revealed plans in late November 2020 to reform the country's GST/HST system to bring foreign-supplied digital services into scope. The changes come into effect on July 1, 2021. You can read more on this move here.
The reasoning behind the move is explained in this CRA Statement: "To improve the collection of the GST/HST and level the playing field between resident and non-resident vendors, the Government proposes that non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax to the CRA [Canada Revenue Agency] on their taxable supplies to Canadian consumers."
Previously, in January 2019, the Canadian province of Québec introduced new rules extending its sales tax system to the cross-border supply of digital services by non-resident companies. Saskatchewan did likewise.
These introductions have been considered a success with more revenue collected than expected. The new rules required foreign vendors without a PE or significant presence in Québec to register for and collect Québec sales tax (QST) on their sales to Québec-based consumers. They do so via a simplified registration system. More here on our Québec-specific blog.
The information contained in this publication (“Information”) has been provided to you for general information purposes only and we recommend that you obtain professional advice before acting or refraining from action as a result of the Information. Taxamo accepts no liability for any loss occasioned to any person acting or refraining from action as a result of the Information.
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