Digital Service Tax for Digital Products/Services

Are you wondering why your Amazon, Netflix and Google ads monthly installments have gone up after July 1st, 2021? Then you must read about the new digital service tax rule. The proposed GST rules were first announced in November 2020, and effective July 1st, 2021, they impose the obligation to non-resident vendors and digital or distribution platform businesses with no physical presence in Canada to register, collect and remit GST/HST on their sales in Canada.

Who is getting affected:
1. Non-resident suppliers of digital products/services (threshold CAD$ 30,000 over a 12 month period)
2. Platforms that facilitate the sale of these products/services (threshold CAD$ 30,000 over a 12 month period)
3. Non-resident suppliers of goods as well as operators of fulfillment warehouses (threshold CAD$ 30,000 over a 12 month period)
4. Individual consumers of such services with a Canadian address
5. Canadian business owners who purchase such services

How Does it affect:
This rule will give the level the playing field to Canadian vendors who sell digital products and services compared to their foreign counterparts by making their products and services more competitive. There are two ways for Non-resident vendors to register for GST/HST in Canada.
1. Simplified registration system: This system will not allow non-resident registrants to claim input tax credits (ITC) for taxes paid on the inputs used in their commercial activities.
2. Standard GST/HST rule: If non-resident vendors like to claim ITCs, they can register under the standard GST/HST rules.

Consumers in Canada with the valid GST/HST registration number do not need to pay GST/HST tax on their purchases. However, they need to add their GST/HST registration number to their payment profiles to claim this benefit.

For more information on this new rule, contact IDM Professional Corporations CPA/ Ishali Mulchandani CPA

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