Jan 10, 2022
Written by: Brian Morcombe, Partner & Indirect Tax Practice Leader, BDO Canada – 2021
On July 1, 2021, new rules came into force that will significantly impact non-resident vendors and online platform operators. Specifically, the changes require certain non-resident vendors and operators of online platforms to register for, collect, and remit goods and services tax (GST)/harmonized sales tax (HST) on:
- sales of digital products and services provided to Canadian customers;
- goods supplied through fulfillment warehouses located in Canada and made by non-resident vendors directly through websites; and
- supplies made via short-term accommodation platforms.
Here’s what you need to know about Canada’s new digital sales taxes.
Supplies of digital property and services
What are the new rules?
Non-resident vendors supplying digital property and services to consumers in Canada are required to register for and collect GST/HST on these taxable supplies to Canadian consumers. An example is Netflix which, prior to July 2021, may not have been viewed as carrying on business in Canada and was not required to register for GST/HST. Under the new rules, Netflix is required to register to collect tax from customers in Canada that are not registered for GST/HST, putting Netflix on equal footing with Canadian resident streaming service vendors already required to collect tax from customers.
A consumer includes persons not registered for GST/HST (persons registered for GST/HST are not considered consumers for the purposes of the new rules). Operators of third-party distribution platforms making these types of supplies are also required to register. A simplified registration and remittance framework is available to these registrants that are not otherwise carrying on business in Canada.
The new requirements apply to non-resident vendors and distribution platform operators whose revenue from taxable supplies of property and/or services exceed, or are expected to exceed, C$30,000 over a 12-month period.
Can ITCs be claimed?
A condition of the simplified framework is that non-resident vendors and distribution platform operators using the simplified registration framework are not able to claim input tax credits (ITCs) to recover any GST/HST paid on expenses they incur related to their Canadian sales.
Goods supplied through fulfillment warehouses and through websites
What are the new rules?
Distribution platform operators are required to register to collect and remit GST/HST under the general regime (as opposed to the simplified framework discussed above) on sales of goods located in warehouses in Canada if the sales are made through that platform by non-registered vendors. Non-resident vendors using Canadian fulfillment warehouses to sell in Canada without the use of a distribution platform are also required to register for and collect GST/HST under the general regime. Fulfillment businesses in Canada are required to notify the Canada Revenue Agency of their activities and maintain certain records related to non-resident clients.
Lastly, non-resident vendors that make sales to consumers in Canada using their own website are generally also required to register for GST/HST under the general regime. GST/HST registration and collection is required where qualifying supplies, including those made through distribution platforms by non-registered third-party vendors to purchasers in Canada that are not registered for the GST/HST, exceed or are expected to exceed C$30,000 in a 12-month period.
Can ITCs be claimed?
Vendors that are registered under the general regime, as opposed to the simplified framework, will generally be eligible to claim ITCs in respect of GST/HST incurred in the course of their commercial activities.
Short-term accommodation platforms
What are the new rules?
GST/HST applies to all supplies of short-term accommodation (generally a residential complex or unit supplied for periods of less than 30 days and for more than C$20/day) supplied in Canada through an accommodation platform, such as Airbnb. If the property owner is registered for GST/HST, the owner continues to be responsible for collecting and remitting the GST/HST from its guests. If the property owner is not registered for GST/HST, the accommodation platform operator must collect and remit the GST/HST on that property owner’s supplies of accommodation to consumers.
Can ITCs be claimed?
Non-resident accommodation platform operators that are not considered to be carrying on business in Canada and are making supplies to consumers (as opposed to GST/HST registered persons) use the simplified registration framework, resulting in no entitlement for ITCs. Accommodation platform operators that are resident in Canada are required to register under the general regime and are able to claim ITCs where all conditions are met.
What about provincial sales tax (PST)?
If all of this sounds familiar, it should. Quebec introduced digital sales tax provisions aimed at non-residents of Canada that are not registered for GST/HST and Quebec sales tax (QST), defined as foreign specified suppliers, as well as specified digital platform operators on Jan. 1, 2019, requiring them to become registered for QST. Beginning Sept. 1, 2019, this QST registration requirement was broadened to include residents and non-residents that are registered for GST/HST but not registered for QST (i.e., Canadian specified suppliers).
Impacted vendors are required to register for QST under the simplified framework where sales exceed C$30,000 to individual consumers in Quebec in the preceding 12 months and relate to intangibles (like software and digitized products) and services. Canadian specified suppliers are required to collect QST on goods as well as intangibles and services. Like the new GST/HST simplified framework, Quebec restricted input tax refunds on vendors using its simplified framework.
Effective Jan. 1, 2020, Saskatchewan introduced rules targeting non-residents making e-commerce sales to purchasers in the province. Online marketplace facilitators and online accommodation platforms are now required to register and collect PST on electronic distribution services that are delivered, streamed, or accessed through an electronic distribution platform (e.g., website, internet, portal, or gateway) and online accommodation services that are delivered or accessed through an online accommodation platform, respectively.
British Columbia expanded its PST registration requirements to include Canadian sellers of goods, along with Canadian and foreign sellers of software and telecommunication services. These new provisions come into force on April 1, 2021.
Lastly, Manitoba recently released legislation taxing certain digital sales of goods and services effective Dec. 1, 2021. The following vendors will be caught in the new rules and will be required to register for, collect and remit Manitoba retail sales tax (RST):
- online marketplaces on the sale of taxable goods sold by third parties via their online platforms;
- online accommodation platforms on the booking of taxable accommodations in Manitoba; and
- audio and video streaming service providers on the sale of streaming services (by virtue of being included as telecommunication services).
Given the different approaches taken by the federal government and each of the provinces when taxing digital property and services, vendors and platform operators will need to gain a strong understanding of the requirements in each jurisdiction to prevent costly errors. If you need assistance navigating these rules, please contact your WVC advisor
Jun 09, 2021
COVID-19 has fundamentally changed the way in which businesses operate. From remote working to labor shortages, businesses have been forced to think innovatively to survive in a post-pandemic world. Revenue and cash flow have no doubt been a point of unease. During a recent WVC survey, more than 50% of respondents noted their number one concern being cash flow and access to capital. In a time of crisis, the focus is less on revenue and profits and more on liquidity and cash flow. In a distressed organization where resources are likely constrained, time is better spent on developing an accurate cash flow.
William Vaughan Company has developed a 13-week cash flow forecast tool for businesses to assess short-term cash demands. This model offers the most granular view into the money moving in and out of a business which means any short-term planning shortfalls can be addressed immediately. Click here to download.
Here are some best practices for cash flow forecasting business owners should consider if and when they find themselves in a crisis:
- Take control – Prioritize your expenses from critical to nonessential. With precise insight into your cash peaks and valleys, it’s easier to prepare contingency plans ahead of projected pinch points.
- Let the data drive decisions – Short-term cash flow forecasting should be driven by your data. Critical decisions can be made effectively with the numbers at hand. Most importantly, the 13-week cash flow is an objective, repeatable model that can eliminate false optimism among leadership.
- Communicate – Use this as an opportunity to create an open dialogue between management and other key team members. In addition, it can also help expedite key decisions for your lenders.
- Think outside the box – Think about other financing opportunities. This will also identify fixed versus variable expenses in which you can build scenarios from the model and “stress test” it against various conditions.
As businesses begin the long road to recovery, thinking strategically and taking action to minimize negative impacts will decide who remains competitive. Cash flow forecasting is just one of the many tools business owners can use to ensure their sustainability. With a thoughtful approach, you will gain the visibility needed to potentially right the ship.
How we can help
Don’t go at it alone! If you’re not sure how to assess your current environment and need guidance on utilizing cash flow forecasting, contact a William Vaughan Company advisor today!
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Jun 11, 2015
You probably know of several businesses whose formal names end with the acronym LLC. And you probably also know that LLC stands for limited liability company. Here are ten things you may notknow.
- An LLC generally protects its owners from personal liability for information on llcbusiness obligations in much the same way a corporation does, but an LLC is not a corporate entity.*
- Like a corporation, an LLC can do business in multiple states, although an LLC must be organized in a specific state.
- The owners of an LLC are called “members.” There is no limit on the number of members an LLC can have, and members don’t necessarily have to be individuals. Members’ management roles are typically spelled out in an operating agreement.
- Upon formation of an LLC, the members contribute cash, property, or services to the LLC in exchange for LLC shares or units.
- An LLC may borrow money in its own name and is responsible for repayment of the debt.
- An LLC is usually treated as a partnership for federal income-tax purposes. (The remaining four points assume partnership treatment.)
- Like partners, LLC members are not considered employees of the company. However, an LLC can have non-member employees.
- LLC members are taxed directly on company income. The LLC itself doesn’t pay federal income taxes.
- If an LLC has a loss, its members generally can deduct their share of the loss on their own tax returns.
- For tax purposes, an LLC’s income and losses are divided among its members according to the terms of their agreement. Tax allocations must correspond to economic allocations of profit and loss.
An LLC is but one structure you might consider using for a business venture. We can help you determine which type of arrangement will best meet your objectives.
- Each state has its own laws governing LLCs. Consult with an attorney before establishing an LLC.
Jun 09, 2015
Where can you turn if you need cash in an emergency? Some people turn to their 401(k) plans. After all, you’re borrowing your own money and paying it back to yourself with interest.
But taking a loan from your 401(k) plan may put you at risk of not reaching your retirement goals. Before you take any money from your retirement account, take the time to review its impact and the rules associated with 401(k) plan loans.
On the Plus Side
If your plan permits loans (and not all plans do), you’ll generally be able to borrow up to half of your vested plan balance, capped at $50,000. Taking a loan from your plan may be easier and faster than getting a loan from a traditional financial institution. And you’ll usually repay the principal and interest to your plan account through automatic payroll deduction.
On the Minus Side
The money you borrow will no longer be in your account benefiting from tax-deferred growth. Plus, you’ll be repaying the loan with after-tax dollars.
That means the money used for repayment will be taxed twice, since you’ll pay tax on it again when you withdraw it at retirement. And, if you have trouble contributing to your plan account while you’re making loan payments, you might end up with less saved for retirement than you need.
And the really bad news? If you leave your employer for any reason, you’ll usually have to repay the entire loan balance within 90 days or it will be considered a taxable distribution, requiring you to pay income tax on the amount of the loan. Furthermore, you may potentially owe a 10% early withdrawal penalty on the amount in addition to taxes.
Hardship Withdrawals: A Last Resort
If you’re faced with a financial emergency and you’ve already borrowed all you can, you may be able to take a hardship withdrawal from your 401(k) plan account. You must have an immediate and heavy financial need, such as medical expenses that aren’t covered by insurance.
You usually can withdraw the money you’ve contributed, but not employer contributions or earnings. You’ll owe income tax and, possibly, an early withdrawal penalty. You won’t be permitted to make contributions to your plan for six months after the hardship withdrawal is made. And, unlike a plan loan, withdrawals cannot be repaid to the plan.
Jun 04, 2015
Summer is here! Almost. With the nice warm weather, who wants to be cooped up in their car every day on their way to work? Many American’s across the country have taken up alternative travel arrangements to get themselves out of the isolation of their cars. Finding other ways to get around town is a great thing for their health and the environment, but what many employees are unaware of is it could be good for their pocketbooks as well!
Gas is expensive! So, put aside the obvious fact that biking to work would save some serious dough and consider the possible tax benefits to making the daily environmentally conscious commute to work. That’s right…tax benefits.
The Internal Revenue Service has decided that Qualified Bicycle Commuting Reimbursement in the amount of twenty dollars ($20) per Qualified Bicycle Month can be excluded from their employees’ wages. A Qualified Bicycle Month is any month:
- In which an employee uses their bicycle on a regular basis for a substantial portion of commuting to their residence and place of employment and,
- The employee does not receive any transportation in a commuter highway vehicle. The employee doesn’t receive a transit pass or any qualified parking benefits.
Of course, the employer can provide a benefit over the twenty dollar threshold, but any amount over the exclusion limit would be required to be added to the employees’ wages. One of the nice benefits of this twenty dollar exclusion is the fact that even though the employees are not taxed on this exclusion amount; the employer can still deduct it as an expense against their own taxes.
So while twenty dollars per month isn’t a huge amount, wouldn’t it be nice to receive that benefit if you planned on the alternative traveling this summer! Save some money, good for the environment, and good exercise, seems like a win-win.
By: Jill Blakeman, CPA
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