International E-Commerce Sellers in Canada Face New Tax Obligations Starting July 1st.

In its fall 2020 economic statement, the Canadian Federal Government proposed new tax rules that will affect foreign e-commerce companies engaged in selling to Canadians. These changes, taking effect in the summer of 2021, directly impact international companies selling digital products, short-term rental accommodation, and tangible products through fulfillment warehouses in Canada.

Currently, foreign companies selling digital products or services in Canada do not have to collect sales tax as long as they don't have any physical presence or employees in Canada. That changes in a few months.

Booming Online Sales, A Level Playing Field for Canadian Businesses

Online sales increased in Canada by nearly 70% in 2020. Canadian sellers in the market must collect federal and provincial sales taxes from customers, which puts them at a distinct disadvantage with international sellers. New tax rules being brought in by Canada’s Government are a move to rectify that inequity and make Canadian sellers more competitive.

Starting July 1st, 2021, all foreign sellers of digital products to Canadians will be obligated to register with Canadian Tax Authorities, collect and remit sales taxes.

Apps, Steaming Services and Short-Term Rentals Impacted

These new tax obligations include mobile apps as well as movie and music streaming services. While foreign sellers of products distributed through fulfillment warehouses are already required to collect sales taxes, many don’t. Airbnb and similar companies that supply short-term rentals will also be required to register and collect sales taxes in Canada.

Companies like Amazon will be required to maintain records for international sellers using their platforms to sell to Canadians. These records will make it easier for tax authorities to identify sellers not paying Canadian taxes, making tax avoidance riskier.

If you have any questions about these upcoming sales tax changes for e-commerce retailers in Canada or how to stay on the right side of the Tax Man, contact us for a consultation.

You can read more about Canada’s Fall Economic Statement 2020 here – A prudent fiscal plan | FES 2020