By Denis Carmel
OTTAWA – Foreign-based vendors with no physical presence in Canada do not have to charge Canadians GST/HST on sales of digital products or services — like mobile apps, online video gaming (not to mention purchases within apps and games) and video and music streaming. Nor do they pay taxes on earnings from Canadian consumers.
In today’s economic statement from the federal government, however, foreign-based vendors selling digital products or services to consumers in Canada (such as Netflix, Spotify and others) will be required to register for, collect and remit the GST/HST on their taxable sales to Canadian consumers.
The statement also said the federal government will move to directly tax foreign companies, too, by 2022. Until now, the position of the government was to wait for a multilateral approach through the OECD when it comes to direct taxation of revenues earned from digital sales here, but today it relented to pressure from many in several industries in Canada. “While we strongly favour a multilateral approach, Canada proposes to act unilaterally, if necessary, to apply a tax on corporations that provide digital services,” said Finance Minister Chrystia Freeland (above).
Other countries are moving in the same direction. Recently, for example, Netflix agreed to begin reporting revenues earned in the U.K., which will see it begin to pay taxes there.
“Everyone must contribute their fair share, so that the government has the resources to invest in people and keep our economy strong. That is why we are proposing to move ahead with implementing changes to ensure that the Goods and Services Tax/Harmonized Sales Tax (GST/HST) applies in a fair and effective manner to all ecommerce transactions, including those facilitated by multinational digital giants,” reads the statement.
The sales tax changes are proposed to be effective July 1, 2021 and the government estimates the proposed measure will increase federal revenues by $1.2 billion over five years. Direct taxation of the companies may well raise more than that.
Quebec, one of two provinces (Saskatchewan is the other) is already forcing digital companies to collect provincial sales tax and as of June 2020 had collected $128 million over 16 months.
Canadian broadcasters also had one of its wish-list items met by the government today.
In his first communication to its members last Thursday, the new president of the Canadian Association of Broadcasters (CAB), Kevin Desjardins, reiterated the CAB’s commitment to have the Part II fees eliminated this year to help broadcasters during these difficult times.
He wrote, “We believe that there is support for our request at Canadian Heritage, given the serious situation facing the industry. However, there are financial implications to the waiver, and so ministries such as Finance are also involved. Thus, while we have not received a ‘no,’ it is looking extremely unlikely that we will receive a ‘yes’ before December 1st.”
But he was wrong, in a good way.
“The government will also provide additional Covid-19 relief to local television and radio stations by supporting the waiving of broadcasting Part II licence fees in 2020-21, which are collected annually by the Canadian Radio-television and Telecommunications Commission. Waiving these fees will provide up to $50 million in relief to these companies, helping them to stay afloat and maintain their broadcasting offerings to Canadians.”
This is something broadcasters, such as CHCH’s Cal Millar, have been lobbying for throughout the pandemic.
This covers licensee fees of television stations, radio stations and discretionary television services but not BDUs like cable, satellite or IPTV pay TV providers.
“The CAB is very pleased by the government’s decision in the fall economic statement to waive Part II fees for private broadcasters. Given the profound structural challenges faced by the sector, and the economic impact of Covid-19 on their businesses, this waiver will allow many private broadcasters to persevere through the tough year ahead.”
On March 30, the Government, by Order in Council, had ordered the CRTC not to invoice to broadcasters for Part I fees, a saving of a little more than $30 million for the beleaguered broadcasters. Part I fees are levied to pay for the costs of the Commission’s Broadcasting Activity.
