Canada’s New Digital Sales Tax

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

Categories: Uncategorized


Ohio’s Municipal Withholding Dilemma – Take 3

Dec 30, 2021

Hybrid work arrangements significantly impact municipal income tax withholding requirements and raise other municipal tax issues.

With the start of the new year just around the corner, the “pre-pandemic” law for Ohio municipal income tax withholding will soon return.

Applicable to periods beginning on or after 1/1/2022, if an employee works a hybrid schedule by spending some days working at home and other days working at the office, employers will once again be required to withhold municipal tax based on where the employee’s work is actually performed. For many employers, this may trigger withholding for employees’ home municipalities that the employer may never have been required to do before. Additionally troubling is the requirement for businesses to allocate such wages, and potentially apportion some gross receipts (sales) as well, to these home municipalities for purposes of the net profits (income) tax, subjecting the company to income tax reporting in each of their employees’ home municipalities.

As we recommended in our July blog, to ease the complexities of tracking actual work locations for Ohio municipal withholding requirements in 2022, employers could consider having employees sign formalized, hybrid work agreements. Such agreements provide consistency, structure, and ease of record keeping. In exchange for permitting hybrid work schedules, employers might consider requiring employees to report true-up differences between actual and forecasted work on their personal municipal income tax returns and to provide proof of payment (in case the employer is audited). Noting that the hybrid work agreement will be helpful but cannot cover all municipal activity, employers could also aim to develop ways within their internal system to most easily track multi-location work performed by employees throughout the year. Employers could consider contacting municipalities to gain pre-approval of estimated or hybrid withholding approaches or enter into withholding agreement(s) with the municipalities. Consultation with legal counsel related to any employment arrangements should also be considered due to the complexity of labor laws.

If we can assist you regarding your specific facts and circumstances and in making decisions about municipal income tax compliance or if you have any questions, please contact your William Vaughan Company advisor.

Categories: Tax Compliance


Ohio’s Municipal Payroll Withholding Dilemma – Take 2

Jul 09, 2021

On June 30, Governor Mike DeWine signed into law Ohio’s 2022-23 budget. One of the key items in the law was the clarification of a municipal income tax withholding dilemma that has been ongoing since virtually the beginning of the COVID-19 pandemic. While this clarification means good news for many employees, it may also be a massive headache for employers.

The Good News
Earlier this year, we penned a blog outlining how a temporary “Pandemic” law change intended to ease municipal income tax withholding burdens on employers was, in fact, having unintended negative consequences on remote workers. Many were left paying taxes to municipalities they did not live in and did not physically work in either, due to stay-at-home orders.

The 2022-23 budget bill extends the temporary law noted above through December 31, 2021, and clarifies that it applies only to employer withholding requirements and not to the actual liability an employee has to a given city. This means, for 2021 only, employees can request a tax refund for any days they neither lived nor physically performed work in a municipality. It is important to note an employee may still owe tax to the municipality in which they live.

The Bad News
Yes, the temporary law is extended to the end of 2021, but that means, beginning in 2022 “pre-pandemic” law will be back in place.

While the ever-expanding world of technology was leading us down a road where remote work would become the norm, the COVID-19 pandemic put us in a Lamborghini and sped us there in a matter of a year. Employers have realized their workforce can get work done remotely, and employees are becoming accustomed to more time with their families and much less time commuting while continuing to be productive in their work. Remote work is here to stay, and absent any future, permanent law changes, the reversion in 2022 back to pre-pandemic rules has the potential to be a huge problem for two reasons.

  1. First, pre-pandemic law included a 20-day municipal withholding rule, only requiring employers to withhold if an employee physically worked in a municipality for more than 20 days. Unfortunately, this rule will not align very well with a remote work environment. Even if a business is modestly flexible, allowing employees to work remotely just two days a month, this would trip the 20-day rule, requiring withholding from wages for every municipality within which their employees reside.
  2. Second, although many employers offer courtesy withholding so may already be withholding taxes for those cities, tripping this 20-day rule will now require those wages to be allocated to that municipality for purposes of the net profits (income) tax, subjecting the company to Income tax in each of those municipalities.

To ease into the 2022 transition, employers could consider formalizing hybrid work arrangements and creating an internal system to easily track days worked remotely.

We will be keeping our eyes peeled for any future legislation that may alter municipal tax rules for 2022 and beyond. If you have any questions in the meantime, please contact your William Vaughan Company advisor.

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wvco.com | 419.891.1040

Categories: COVID-19, Tax Planning


Fueling Growth With A JobsOhio Inclusion Grant

Jul 09, 2021

The JobsOhio Inclusion Grant program was established in 2020 with the goal of providing financial support for eligible projects in designated distressed communities and/or for businesses owned by underrepresented populations across the state, including minority, veteran, and women-owned businesses.

Locally, the Toledo Regional Growth Partnership and William Vaughan Company have assisted qualifying organizations in receiving upwards of $25,000 to help facilitate growth.

How do I qualify?

To qualify for the Inclusion Grant, a company must:

  • Meet one of the 2 criteria – 1.) Be owned by an underrepresented population – which includes race, ethnicity, gender, veterans, and those with disabilities, or 2.) located in a qualified distressed community as defined by the Economic Innovation Group.
  • Be a targeted industry including Advanced Manufacturing, Aerospace and Aviation, Automotive, Energy and Chemicals, Financial Services, Healthcare, Food and Agribusiness, Logistics and Distribution, Technology, Military, and Federal.
  • Ineligible companies include retail or operations that include point-of-final-purchase transactions at a facility open to the public or other population-driven businesses that derive most of their sales from in-person delivery of services or products. For example, restaurants, hair salons, physician’s offices, retail stores, daycares, etc. For a full list of ineligible businesses, visit the JobsOhio website.
  • Additionally, companies must have been in operation for at least one (1) year and be able to demonstrate $100,000 in annual revenues.

What can the grant fund be used for?
Funds may be put towards eligible costs including fixed-asset investment in machinery and equipment, real estate investments, and training costs, among other items including:

  • Land
  • Building
  • Leasehold improvements
  • Machinery and equipment
  • Moving and relocation costs of machinery and equipment related to the project
  • Infrastructure
  • Site development
  • Revitalization costs including demolition, renovation, and environmental remediation
  • Fees and material costs related to planning and feasibility studies
  • Engineering services
  • Employee training costs
  • Information technology including hardware and industry-specific software.

A full list of eligible costs can be found on the website noted below.

What should I do next?

Visit the JobsOhio Inclusion Grant Program website. Ensure you meet the criteria to be eligible. The Grant is reimbursement-based and requires supporting documentation including proof of payment.

Contact your William Vaughan Company representative or call our office number below to receive assistance in applying for this useful grant.

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wvco.com | 419.891.1040

Categories: COVID-19, Other Resources


Ohio Small Business Grants Available Starting June 29

Jun 28, 2021

The Ohio Development Services Agency released eligibility information for a series of small business grants available starting Tuesday, June 29. Below you will find information regarding each of these grants including eligibility, qualifications, and fund usage.

Food & Beverage Establishment Grant
This program provides grants up to $30,000 to restaurants, bars, coffee shops, and other food and drinking businesses affected by the COVID-19 pandemic. The dollar amount of each grant will be determined by the business’s loss of revenue in 2020.

  • Eligible businesses for this grant include food service contractors, caterers, mobile food services, bars, taverns, nightclubs, full-service restaurants, limited-service restaurants, cafeterias, coffee shops, and businesses that do not otherwise qualify for the Entertainment Venue Grant because they earn more than 50 percent of their revenue from the sale of food and/or beverages.
  • Eligible businesses must have experienced at least a 10 percent reduction in revenue in 2020 at one or more Ohio locations.
  • Grant funds can be used to reimburse eligible businesses for the following expenses relating to their Ohio business location as long as the costs do not violate state or federal law and are not otherwise specified as ineligible costs:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Utility payments.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs.
    • Business supplies or equipment

Grants will be awarded on a first-come, first-served basis under the guidelines outlined, here.

Lodging Grant
This program provides grants up to $30,000 to hotels, motels, and bed and breakfast operations affected by the COVID-19 pandemic. The dollar amount of individual grants to qualifying businesses will be determined by the business’s decline in occupancy rate in 2020.

  • The business must have at least one Ohio location that has been in operation since at least Dec. 1, 2019, and must have a hotel/motel license from the Ohio Department of Commerce.
  • Businesses can be a hotel, motel, or bed and breakfast.
  • The business must have experienced at least a 10%reduction in occupancy in 2020 as a result of COVID-19.
  • Grant funds can be used to reimburse eligible businesses for the following expenses not otherwise specified as ineligible costs:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Utility payments
    • Business supplies or equipment.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs

Grants will be awarded on a first-come, first-served basis under the guidelines outlined here.

New Small Business Grant
Grants of up to $10,000 to small businesses established between Jan. 1, 2020, and Dec. 31, 2020, under this program.

  • The business must be a for-profit entity that started operations between Jan. 1, 2020, and Dec. 31, 2020, and that has at least two and no more than 25 Ohio employees paid via W2 wages as of Jan. 1, 2021.
  • The business must have a physical location in Ohio and experienced revenue loss or unplanned costs because of the COVID-19 pandemic.
  • A lengthy list of ineligible businesses includes those that previously received the Small Business Relief Grant; are a nonprofit entity; are publicly traded; are operated by a governmental agency or entity; are a club; are primarily engaged in political or lobbying activities or political issue advocacy; operate as a sexually oriented business; engage in conduct regulated by the Ohio Casino Control Commission or the Ohio State Racing Commission. A complete list can be found here.
  • Grant funds can be used to reimburse eligible businesses for the following expenses:
    • Personal protective equipment to protect employees, customers, or clients from COVID-19.
    • Measures taken to protect employees, customers, or clients from COVID-19.
    • Mortgage or rent payments for business premises (personal residences explicitly excluded).
    • Utility payments.
    • Salaries, wages, or compensation paid to contractors or employees, including an employer’s share of health insurance costs.
    • Business supplies or equipment.

Additional grants, including the Entertainment Venue Grant which provides up to $30,000 to theaters, music venues, spectator sports venues, museums, and other entertainment establishments affected by the COVID-19 pandemic, are available through the Ohio Development Service Agency website.

What should I do next?
Beginning Tuesday, June 29, 2021, businesses can apply at BusinessHelp.Ohio.Gov. To access the application, individuals will be required to log in using an existing OH|ID or create a new OH|ID, which provides users with secure access to state of Ohio services and programs. For more information on creating an OH|ID, visit OHID.Ohio.Gov/. For help in creating an OH|ID account, click here.

After an application is approved, businesses also will be required to provide an Ohio Supplier ID assigned by the Ohio Office of Budget and Management. If the applicant business does not currently have an Ohio Supplier ID, the business will be required to register at Supplier.Ohio.Gov. A Supplier ID is required so that grant funds can be distributed by direct deposit.

If you require assistance or have general questions about your application, our team is ready to help. Contact our restaurant practice leader, Kristin Metzger below.

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Kristin Metzger, CPA
Restaurant Practice Leader
kristin.metzger@wvco.com | 419.891.1040

Categories: COVID-19, Other Resources, Restaurant & Hospitality