• Previous
• Table of Contents
• Next

Archived - Annex 4
Tax Measures: Supplementary Information

Overview

This annex provides detailed information on tax measures proposed in the Fall Economic Statement.

Table 1 lists these measures and provides estimates of their fiscal impact.

The annex also provides legislative proposals to amend the Income Tax Act, the Excise Tax Act and other related legislation as well as draft amendments to related regulations.

Income Tax Measures

Immediate Support for Families with Young Children

The Canada Child Benefit (CCB) is a non-taxable benefit that is paid monthly and provides support for eligible families with children under the age of 18. The CCB is based on adjusted family net income with the benefit phase-out rate depending on the number of children in the family. For the 2020-21 benefit year (July 1, 2020 to June 30, 2021), the CCB provides a maximum benefit of $6,765 per child under the age of six and $5,708 per child aged six through 17. Families with less than $31,711 in adjusted net income in 2019 receive the maximum benefit for the 2020-21 benefit year. The phase-out rates and income thresholds are indexed to inflation annually.

In order to provide immediate support for families with young children, the Government proposes to amend the Income Tax Act to provide, in 2021, four payments of:

• $300 per child under the age of six to families entitled to the CCB with family net income equal to or less than $120,000, and
• $150 per child under the age of six to families entitled to the CCB with family net income above $120,000.

The first of these amounts would be payable after the enabling legislation is passed, with subsequent amounts payable in the first month of each remaining quarter (i.e., at the end of April, July and October 2021). These amounts would be payable to the individual who receives a CCB amount for a particular month, i.e., the primary caregiver of the child in January, April, July or October 2021.

Eligibility for these quarterly amounts would be based on whether an individual is entitled to a CCB payment in that particular month. If a family's adjusted net income is too high to receive the CCB in that month, they would not receive a quarterly amount. For the amounts that would be payable in the first quarter of 2021 and April, a family's adjusted net income is based on the family's net income in 2019. For the months of July and October, a family's adjusted net income is based on the family's net income in 2020. For example, if a family's net income is $130,000 for 2019 and $70,000 for 2020, the parent entitled to the CCB in respect of a child under the age of six would receive the additional quarterly amount of $150 once enabling legislation is passed and at the end of April and $300 at the end of July and October.

An amount would be payable in respect of a child for January, April, July or October if the child is under the age of six at the beginning of that month. For example:

• If a child turns six sometime in January 2021, the child's primary caregiver would (provided all eligibility criteria are met) be entitled to receive the CCB in respect of this child for that month. Accordingly, a quarterly amount would be payable in respect of this child for January 2021 (delivered after the enabling legislation is passed) but not afterwards.
• If a child is born sometime in January 2021, the child's primary caregiver would not be entitled to receive the CCB in respect of the child for that month. Accordingly, no quarterly amount described above would be payable in respect of this child for January 2021. However, a quarterly amount would be payable for April 2021, provided that the child's primary caregiver is entitled to receive the CCB in respect of this child for that month.

The rules that apply to the CCB would generally also apply to these additional quarterly amounts. For example:

• To be eligible for an amount, an individual must reside with a child under the age of six and be the parent who primarily fulfils the responsibility for the care and upbringing of that child or be a shared-custody parent.
• Amounts received would not be taxable and would not reduce benefits paid under the goods and services tax credit. They would also not be included in income for the purposes of federal income-tested programs delivered outside of the income tax system.

Shared-Custody Parents

If an individual is entitled to the CCB as a shared-custody parent in respect of a child under the age of six in a month for which a quarterly amount would be payable, this individual would receive half of the applicable quarterly amount in respect of each shared-custody child.

Retroactive Payments

Currently, an individual can apply to receive retroactive payments of the CCB in respect of a month on or before the day that is 10 years after the beginning of that month. In order to qualify for the additional quarterly amounts, however, an individual must be determined to be entitled to the CCB by the end of 2023

Children’s Special Allowance

The Government pays the Children’s Special Allowance in respect of children who are in the care of, and maintained by, a federal, provincial, territorial or First Nations agency or institution (e.g., a child protection agency). The Children’s Special Allowance provided in respect of a child is equivalent to the maximum CCB amount for an eligible child of the same age.

To ensure consistent treatment for children under the care of a child protection agency, the Government also proposes to provide equivalent quarterly amounts of $300 for each child under the age of six in respect of whom a Children’s Special Allowance is paid.

Consistent with the rules for the CCB, which provide that no CCB is payable for a month for a child in respect of whom a Children’s Special Allowance is payable for that month, no quarterly amount based on CCB entitlement will be payable when a quarterly amount is payable in respect of the same child based on eligibility for the Children’s Special Allowance for that month.

Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit

Budget 2019 proposed changes to the Registered Disability Savings Plan (RDSP) regime for beneficiaries with episodic disabilities. These proposed changes include removing the time limitation on the period for which an RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit (DTC) and further, modifying repayment obligations. Budget 2019 proposed that these changes would apply as of January 1, 2021. It also proposed that until the coming-into-force date of the measure, RDSP issuers would not be required to close an RDSP solely because the beneficiary is no longer eligible for the DTC.

The Government proposes to maintain the implementation timeline for this measure. Any excess repayments of Canada Disability Savings Grants and Canada Disability Savings Bonds in respect of withdrawals made after 2020 and before the measure is enacted would be returned to a beneficiary’s RDSP following enactment.

RDSP issuers will have the normal flexibilities with respect to time to implement these changes.

Modification to Improve Fairness

An RDSP issuer is required to set aside an amount (referred to as the “assistance holdback amount”) equivalent to the total Canada Disability Savings Grants and Canada Disability Savings Bonds paid into the RDSP in the 10 years preceding an event (e.g., a withdrawal or plan closure) or, in the case of a beneficiary who is no longer eligible for the DTC, the 10-year period preceding cessation of eligibility for the DTC, less any repayments of those amounts. This requirement ensures that RDSP funds are available to meet potential repayment obligations.

To allow beneficiaries who cease to be eligible for the DTC to have future access to the grants and bonds within their RDSPs that are within the assistance holdback amount, Budget 2019 proposed to modify the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount, depending on the beneficiary’s age, in the following manner:

• For years throughout which the beneficiary is ineligible for the DTC that are before the year in which the beneficiary turns 51 years of age, the assistance holdback amount would be equal to the assistance holdback amount determined immediately before the beneficiary became ineligible for the DTC, less any repayments made after the beneficiary becomes ineligible for the DTC.
• Over the following 10 years, the assistance holdback amount would be reduced based on the grants and bonds paid into the RDSP during a reference period. This reference period is initially the 10 years immediately before the beneficiary becoming ineligible for the DTC. Each year after the year in which the beneficiary turns 50 years of age, the reference period would be reduced by a year. For example, for the year in which the beneficiary turns 51 years of age, the reference period would be the nine-year period immediately prior to the beneficiary becoming ineligible for the DTC. The assistance holdback amount would be equal to the amount of grants and bonds paid into the RDSP in those nine years, less any repayments of those amounts. 

These changes announced in Budget 2019 to the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount could, however, result in a lesser amount of grants and bonds being held back from beneficiaries who become ineligible for the DTC after they attain 50 years of age than is currently held back from beneficiaries of the same age who remain DTC-eligible, or would be held back from beneficiaries of the same age who ceased to be eligible for the DTC at an earlier age.

To ensure more equitable treatment, the Government proposes an additional modification to the formula put forward in Budget 2019 for determining the amount of grants and bonds held back from a withdrawal, in the following manner:

• For a beneficiary who ceases to be eligible for the DTC after the calendar year in which they attain 49 years of age, the reference period for the assistance holdback amount would begin on January 1 of the year that is 10 years before the year in which the event (e.g., withdrawal or plan closure) occurs and end on the day preceding the day on which the beneficiary ceased to be eligible for the DTC. The assistance holdback amount would be equal to the total amount of grants and bonds paid into the RDSP during that period, less any repayments of those amounts.

Employee Stock Options

An employee stock option is a form of employment compensation that provides an employee with the right to acquire a share of a corporation at a designated price (the “strike price”).

When an employee acquires a share under an employee stock option agreement, the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the share (including the strike price and any other amount paid to acquire the option) is treated as a taxable employment benefit (an “employee stock option benefit”).

A stock option deduction equal to one-half of the employee stock option benefit is available to the employee, provided certain conditions are met. This deduction results in the employee stock option benefit effectively being taxed at the same rate as a capital gain.

While the stock option deduction can assist start-ups and emerging corporations to attract and retain highly skilled employees, the benefits of the deduction are not well-targeted and accrue disproportionately to a small number of high-income individuals employed by large, established corporations.

Budget 2019 announced the Government’s intention to move forward with changes to limit the benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature firms. The Government released draft legislative proposals in June 2019 and consulted stakeholders on the characteristics of start-up, emerging and scale-up corporations for the purpose of exempting such corporations from the new employee stock option tax rules.

The Government proposes to introduce the new tax rules for employee stock options, which are described in detail below.

New Tax Rules

$200,000 Limit

A $200,000 limit is proposed on the amount of employee stock options that may vest in an employee in a calendar year and continue to qualify for the stock option deduction. For the purpose of the $200,000 limit, the amount of employee stock options that may vest in any calendar year would be considered to be equal to the fair market value of the underlying shares at the time the options are granted. An option vests when it first becomes exercisable. The determination of when an option vests would be made at the time the option is granted. If the year in which the option vests is not clear, the option would be considered to vest on a pro-rata basis over the term of the agreement, up to a five-year period.

The $200,000 limit on the amount of employee stock options that may vest in any calendar year and qualify for the stock option deduction would generally apply to all stock option agreements between the employee and the employer or any corporation that does not deal at arm's length with the employer. If an individual has two or more employers that deal at arm's length with each other, the individual would have a separate $200,000 limit for each of those employers.

If the amount of stock options that may vest in a year exceeds $200,000, those employee stock options granted first would be the first to qualify for the stock option deduction. Where an employee has a number of identical stock options and some qualify for the existing tax treatment while others are subject to the new tax treatment, the employee would be considered to first exercise the stock options qualifying for the existing tax treatment.

Employee Tax Treatment

Where an employee exercises an employee stock option that is in excess of the $200,000 limit, the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the share would be treated as a taxable employment benefit. The full amount of the employment benefit would be included in the income of the employee for the year the option is exercised, consistent with the treatment of other forms of employment income. The employee would not be entitled to the stock option deduction in respect of this employment benefit.

Charitable Donations

Under the current tax rules, if an employee donates to a qualified donee, such as a registered charity, a publicly listed share (or the cash proceeds from the sale of a publicly listed share) acquired under an employee stock option agreement within 30 days of the exercise of the option, the employee may be eligible for an additional deduction equal to one-half of the employee stock option benefit. As a result, where both the stock option deduction and the additional deduction in respect of a qualifying donation are available, the entire employee stock option benefit is effectively excluded from income.
If an employee donates a publicly listed share acquired under a stock option that is in excess of the $200,000 limit, the employee could be eligible for the charitable donation tax credit but would not be eligible for any deduction on any associated employee stock option benefit. Any capital gain that has accrued since the share was acquired under the stock option agreement would continue to be eligible for the full exemption from capital gains tax, subject to the existing rules.

Employer Tax Treatment

For employee stock options in excess of the $200,000 limit, the employer would be entitled to an income tax deduction in respect of the stock option benefit included in the employee’s income. The deduction may be claimed in the taxation year of the employer that includes the day on which the employee exercised the stock option.

There are currently a number of conditions that must be met for an employee to be eligible for the stock option deduction. These conditions would be required to be met for an employer to be entitled to a deduction under the new rules.

Employers subject to the new rules would be able to choose whether to grant employee stock options under the existing tax treatment, up to the $200,000 limit per employee, or whether to grant employee stock options under the new tax treatment (i.e., ineligible for the employee stock option deduction, and instead eligible for a deduction for corporate income tax purposes).

Employers subject to the new rules would need to ensure compliance with respect to the $200,000 limit. This would include a requirement that an employer notify its employees in writing whether options granted are subject to the new tax treatment. In addition, employers would be required to notify the Canada Revenue Agency if the options granted are subject to the new tax treatment.

Employers Subject to the New Tax Rules

The new rules would apply to employers that are corporations or mutual fund trusts.

Employers that are Canadian-controlled private corporations (CCPCs) would generally not be subject to the new rules.

Further, in recognition of the fact that some non-CCPCs could be start-ups, emerging or scale-up companies, non-CCPC employers whose annual gross revenue does not exceed $500 million would generally not be subject to the new rules.

• For an employer that is a member of a corporate group that prepares consolidated financial statements, gross revenue would be as reported in the most recent consolidated annual financial statements of the group presented to shareholders, or unitholders, prior to the date that the stock option is granted, at the highest level of consolidation. Consolidated financial statements are financial statements in which the assets, liabilities, income, expenses and cash flows of the members of the group are presented as those of a single entity, and are prepared in accordance with the generally accepted accounting principles of the jurisdiction in which they are reported.
• For an employer that is not a member of such a corporate group, gross revenue would be as reported in the employer’s most recent annual financial statements prepared in accordance with generally accepted accounting principles and presented to shareholders, or unitholders, prior to the date that the stock option is granted (or that would have been reported if such financial statements had been prepared in accordance with generally accepted accounting principles).

Where employee stock options to acquire shares or units of an entity that is not the employer are granted to an employee, the new rules would apply in respect of those options if that entity does not deal at arm’s length with the employer and either the entity or the employer is subject to the new rules.

Employers that are not subject to the new rules would not be permitted to opt in to the new employee stock option tax rules.

Coming into Force

The new tax rules would apply to employee stock options granted after June 2021. The existing rules would continue to apply to options granted before July 2021 (including qualifying options granted after June 2021 that replace options granted before July 2021). 

Agricultural Cooperatives: Patronage Dividends Paid in Shares

Budget 2005 introduced a measure to provide a tax deferral that applies to patronage dividends paid by an eligible agricultural cooperative to its members in the form of eligible shares issued after 2005 and before 2016. Budget 2015 extended this tax deferral to shares issued before 2021.

Absent this deferral, a patronage dividend paid in shares would be taxable to the member in the year received. The cooperative paying the dividend would also be required to withhold an amount from the dividend and remit it to the Canada Revenue Agency on account of the recipient’s tax liability. Prior to the introduction of the deferral, a portion of the dividend was typically paid in cash in order to fund the member’s tax liability. This cash portion could represent a significant outlay of capital for the agricultural cooperative.

The tax deferral measure allows eligible members of eligible agricultural cooperatives to defer the inclusion in income of all or a portion of any patronage dividend received as an eligible share until the disposition (including a deemed disposition) of the share. Further, when an eligible agricultural cooperative issues an eligible share as a patronage dividend, there is no withholding obligation in respect of the patronage dividend. Instead, there is a withholding obligation when the share is redeemed. An eligible share must not, except in the case of death, disability or ceasing to be a member, be redeemable or retractable within five years of its issue.

The Government proposes to extend this measure to apply in respect of eligible shares issued before 2026.

Emergency Business Supports

The Government has introduced a number of support measures to help businesses and other organizations affected by the COVID-19 pandemic, including the Canada

Emergency Wage Subsidy, the Canada Emergency Rent Subsidy and the Lockdown Support.
Program details in respect of these three measures have been legislated through December 19, 2020 and the application of these measures can be extended by regulation until June 2021. Proposed program details from December 20, 2020 to March 13, 2021 for the three measures are described below.

Canada Emergency Wage Subsidy Extension

The Government introduced the Canada Emergency Wage Subsidy to prevent further job losses and encourage employers to quickly rehire workers previously laid off as a result of COVID‑19. The wage subsidy provides eligible employers that have experienced a decline in revenues with a wage subsidy for eligible remuneration paid to their employees.

Support for active employees

The wage subsidy for active employees includes a base subsidy for all employers that have experienced a decline in revenues, as well as a top-up wage subsidy available to employers most adversely impacted by the pandemic. The maximum combined base subsidy and top-up wage subsidy rate is set at 65 per cent for the current qualifying period, which ends on December 19, 2020.
The Government proposes to increase the maximum wage subsidy to 75 per cent for the eleventh to thirteenth qualifying periods, which run from December 20, 2020 to January 16, 2021, from January 17, 2021 to February 13, 2021 and from February 14, 2021 to March 13, 2021, respectively. The maximum base subsidy would remain at 40 per cent and the maximum top-up wage subsidy rate would increase to 35 per cent, as set out in Table 2.

Support for furloughed employees

A separate wage subsidy rate structure applies for furloughed employees. The wage subsidy for furloughed employees is aligned with the benefits provided through Employment Insurance (EI) through December 19, 2020 to ensure equitable treatment of such employees between both programs.
To ensure that the wage subsidy for furloughed employees remains aligned with benefits available under EI, the Government proposes that the weekly wage subsidy for a furloughed employee from December 20, 2020 to March 13, 2021 be the lesser of:

• the amount of eligible remuneration paid in respect of the week; and
• the greater of:
  • $500, and
  • 55 per cent of pre-crisis remuneration for the employee, up to a maximum subsidy amount of $595.

Employers will also continue to be entitled to claim under the wage subsidy their portion of contributions in respect of the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees.

Reference periods

For the purposes of the wage subsidy (and the rent subsidy, as discussed below), an employer’s decline in revenues is generally determined by comparing the change in the employer's monthly revenues, year-over-year. An employer may also elect to use an alternative approach, which compares the change in the employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues. A deeming rule provides that an employer’s decline in revenues for any particular qualifying period is the greater of its decline in revenues for the particular qualifying period and the immediately preceding qualifying period.

Table 3 below outlines the proposed reference periods for determining an eligible employer’s decline in revenues from December 20, 2020 to March 13, 2021.

Employers that had chosen to use the general approach for prior periods would continue to use that approach. Similarly, employers that had chosen to use the alternative approach would continue to use the alternative approach.

All the other parameters of the program would remain unchanged. Details for the wage subsidy for any periods beyond March 13, 2021 will be proposed at a later date.

Canada Emergency Rent Subsidy Extension

The Government introduced the Canada Emergency Rent Subsidy to provide direct relief to organizations that continue to be economically impacted by the COVID‑19 pandemic. Under the rent subsidy, qualifying organizations that have experienced a decline in revenues are eligible for a subsidy on qualifying expenses.

Rate structure

The Government proposes to extend, until March 13, 2021, the current rate structure for the base rent subsidy (which applies until December 19, 2020), as shown in Table 4.

Revenue decline calculation

Both the rent subsidy and the wage subsidy use the same calculation to determine an organization’s revenue decline. As a result, the same reference periods are used to calculate an organization’s decline in revenues for the wage subsidy and the rent subsidy. Likewise, if an entity elects to use an alternative method for computing its revenue decline under the wage subsidy, it must use that alternate method for the rent subsidy.

The Government also confirms its intention to proceed with the proposed change to the rent subsidy, details of which were announced on November 19, 2020, that would allow amounts to be considered to have been paid when they become due, provided certain conditions are met.

Details for the rent subsidy for any period beyond March 13, 2021 will be proposed at a later date.

Lockdown Support Extension

For locations that must cease operations or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory, the Government introduced the Lockdown Support through the Canada Emergency Rent Subsidy program to provide additional help. In order to qualify for the Lockdown Support, an applicant must qualify for the base rent subsidy.

The Government proposes to extend, until March 13, 2021, the current 25-per-cent rate for the Lockdown Support. Details for the Lockdown Support for any period beyond March 13, 2021 will be proposed at a later date.

Sales Tax Measures

GST/HST Relief on Face Masks and Face Shields

In order to support public health during the COVID-19 pandemic, the Government proposes to temporarily relieve (i.e., zero rate) supplies of certain face masks and face shields from the Goods and Services Tax/Harmonized Sales Tax (GST/HST).

The zero-rating of the GST/HST would apply to face masks (medical and non-medical) and face shields designed for human use that meet certain specifications. The following face coverings would generally be eligible for this GST/HST relief:

• A face mask or respirator that is authorized for medical use in Canada, or meets N95, KN95 or equivalent certification requirements and does not have an exhalation valve or vent.
• A face mask or respirator for use in preventing the transmission of infectious agents, such as respiratory viruses, and that meets the following specified construction requirements:
  • is made of multiple layers of dense material, but may have a portion in front of the lips made of transparent and impermeable material that permits lip reading provided that there is a tight seal between the transparent material and the rest of the face mask or respirator;
  • is large enough to completely cover the nose, mouth and chin without gaping;
  • has ear loops, ties or straps for securing the face mask or respirator to the head; and
  • does not have an exhalation valve or vent.
• A face shield that has a transparent and impermeable window or visor, covers the entire face and has a head strap or cap for holding it in place, but is not specifically designed or marketed for a use other than preventing the transmission of infectious agents, such as respiratory viruses.

This measure would apply to supplies of these items made after December 6, 2020, and is proposed to only be in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.

Application of the GST/HST in Relation to E-commerce Supplies

The GST/HST is a broad-based consumption tax intended to apply to most goods and services consumed in Canada. Applying the tax to the consumption of most goods and services helps ensure that the GST/HST system is fair, efficient and simple.

The ongoing digitalization of the economy is opening up new ways for businesses to sell goods and traditional services (e.g., legal and accounting services) and has seen the development of new types of digital products, such as mobile apps, online video gaming, and video and music streaming services. The evolution of the commercial and retail landscape in Canada, and the ways in which Canadians shop, pose challenges to the effectiveness and fairness of the GST/HST system. In particular, certain aspects of the current GST/HST system are more reflective of the economy that was in place when the tax was introduced in 1991, when goods and services were almost exclusively purchased from stores and other vendors that were located in Canada.

Under the current GST/HST rules, persons that carry on business in Canada are generally required to register for the GST/HST and to collect and remit tax on their taxable supplies of goods and services in Canada. Non-resident persons that are not carrying on business in Canada are not required to register, collect or remit the GST/HST. In the case of goods and services supplied by such non-residents, the GST/HST generally applies in the following manner:

• Where physical goods are purchased from a non-resident vendor, the applicable GST/HST is levied on the value of the goods at the time the goods are imported.
• Where a non-resident vendor supplies digital products or services in Canada to a Canadian consumer, the consumer is required to self-assess and pay the applicable GST/HST directly to the Canada Revenue Agency (CRA). 

The current rules can often result in the GST/HST not being collected on online purchases from non-resident vendors or made through digital platforms, also known as online marketplaces. The non-collection of the GST/HST presents equity, economic and fiscal concerns. In particular, it places physical and online retailers operating in Canada that are required to register for and collect the GST/HST at a competitive disadvantage relative to non-resident vendors.
The Government proposes a number of changes to the GST/HST system to ensure that the GST/HST applies in a fair and effective manner to the growing digital economy.

GST/HST on Cross-Border Digital Products and Cross-Border Services

To improve the collection of the GST/HST and level the playing field between resident and non-resident vendors, the Government proposes that non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax to the CRA on their taxable supplies to Canadian consumers. In many instances, digital products or services may also be supplied to consumers in Canada through digital platforms that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). To ensure that the GST/HST applies equally to these supplies, it is also proposed that distribution platform operators be generally required to register for the GST/HST and to collect and remit the tax on the supplies that these platforms facilitate of digital products or services of non-resident vendors to Canadians.

To facilitate compliance with these requirements – and to be consistent with the Organisation for Economic Co-operation and Development’s recommendations on the digital economy and the actions taken by many other jurisdictions – a simplified GST/HST registration and remittance framework would be available to non-resident vendors and non-resident distribution platform operators that are not carrying on business in Canada (e.g., have no permanent establishment in Canada).

The proposed new simplified system would include the following key features. (Unless otherwise noted, the references hereinafter to non-resident vendors and non-resident distribution platform operators are to those that are not carrying on business in Canada and have not registered under the normal GST/HST rules.)

• Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by non-resident vendors of digital products or services and non-resident distribution platform operators that facilitate the supply of a non-resident vendor’s digital products or services to consumers in Canada.
• Business-to-consumer supplies only: Non-resident vendors and non-resident distribution platform operators using the simplified registration system would be required to collect and remit the GST/HST only on the supply of digital products and services made to Canadian consumers. Conversely, they would not be required to collect and remit the GST/HST on their supplies of digital products or services to businesses. For these purposes, an entity or person that is registered for the GST/HST would be considered a business and any other entity or person would be considered a consumer. Non-resident vendors and non-resident distribution platform operators would rely on the GST/HST registration number of a business as proof of its business status.
• General rule – tax based on consumer’s residence: With certain exceptions, non-resident vendors and non-resident distribution platform operators would be required to collect the GST/HST on their supplies of digital products or services if the consumer’s usual place of residence is in Canada. In line with the approaches taken in other jurisdictions, vendors and platform operators would generally be able to determine whether a customer’s usual place of residence is in Canada (and if so, where in Canada) on the basis of specified indicators, such as the home address, billing address, Internet Protocol address of the device used, bank or payment information, and subscriber identification module (SIM) card that relate to the recipient. Generally, a consumer’s usual place of residence would be considered to be in Canada when two or more of these indicators identify Canada as the consumer’s normal location or residence. Where two or more of these indicators are not available to determine the usual place of residence of a consumer, the Minister of National Revenue would be able to authorize an alternative method of making the determination. Where the consumer’s usual place of residence is in Canada, then the GST/HST would generally apply on taxable supplies and the tax rates (based on current rates) would be as follows:
  • 5 per cent if the consumer’s usual place of residence is in Quebec, Manitoba, British Columbia, Saskatchewan, Alberta, Yukon, the Northwest Territories or Nunavut;
  • 13 per cent if the consumer’s usual place of residence is in Ontario; and
  • 15 per cent if the consumer’s usual place of residence is in Nova Scotia, New Brunswick, Prince Edward Island or Newfoundland and Labrador.
• Exceptions: There would be exceptions to this general rule for transactions where a consumer’s usual place of residence is not an appropriate basis for determining where, or whether, the place of consumption is in Canada and if the GST/HST would apply.
  • Where the digital product or service supplied by a non-resident vendor or a non-resident distribution platform operator is linked or restricted to a specific location in Canada, the rate of the GST/HST to be charged and collected would be the rate applicable in the province or territory of that location.
    • For example, where a non-resident supplier provides remote security monitoring services for a cottage or condominium in the province of Ontario to a consumer whose usual place of residence is in the province of Alberta, the non-resident would be required to collect the Ontario HST at the rate of 13 per cent as the service is in relation to real property situated in Ontario.
  • Additionally, non-resident vendors or non-resident distribution platform operators would not be required to charge and collect the GST/HST on a supply of digital products or services made to a consumer whose usual place of residence is in Canada if the supply is linked or restricted to a specific location outside Canada, such as:
    • services in relation to real property situated outside Canada (e.g., real estate legal services or services of altering, repairing or maintaining real property situated outside Canada);
    • services, or rights to services, that are to be performed at a readily identifiable location outside Canada (e.g., a restaurant meal, spa session or other personal service at a location outside Canada); and
    • services rendered in connection with litigation outside Canada.
• No input tax credits: Non-resident vendors and non-resident distribution platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Those non-resident vendors and non-resident distribution platform operators that wish to claim input tax credits for the GST/HST paid in Canada may register under the normal GST/HST registration process. In this case, they will operate under the normal GST/HST rules.
• Registration threshold: Simplified GST/HST registration would be provided for non-resident vendors and non-resident distribution platform operators making supplies of digital products or services to Canadians under the following circumstances:
  • For a non-resident vendor, if their total taxable supplies of digital products or services made to consumers in Canada exceed, or are expected to exceed, $30,000 over a 12-month period. In determining if they meet this threshold, a non-resident vendor would not include supplies that are facilitated by a distribution platform operator that is registered for the GST/HST (under either the normal or simplified registration system) and that is deemed to have made the supply.
  • For a non-resident distribution platform operator, if their total taxable supplies of digital products or services made to consumers in Canada, including the supplies of digital products or services of non-resident vendors to consumers in Canada that the operator facilitates, exceed, or are expected to exceed, $30,000 over a 12-month period.
    • Note: A distribution platform operator carrying on business in Canada for whom the normal GST/HST rules apply (rather than the simplified framework outlined above) would be required to account for the supplies of digital products or services of non-resident vendors to purchasers in Canada that the operator facilitates in determining their requirement to register. Under the normal GST/HST rules, registration is generally required if a person’s or business’s total world-wide taxable supplies exceed $30,000 over a 12-month period.

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of digital products and services from non-resident vendors and non-resident distribution platform operators, unless the purchase is for use exclusively in the business’s commercial activities.

To help protect the integrity of the proposed simplified GST/HST framework, a penalty would apply if a person provides a GST/HST registration number to a non-resident vendor or non-resident distribution platform operator to evade, or attempt to evade, tax on the purchase of digital products or services acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number and is nevertheless charged the GST/HST, the business would be able to request a refund from the non-resident vendor or non-resident distribution platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of cross-border digital products or services to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

GST/HST on Goods Supplied through Fulfillment Warehouses

Non-resident vendors are increasingly selling goods to Canadians through digital platforms, also known as online marketplaces, that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). These distribution platforms may also store the goods of third-party vendors in fulfillment warehouses in Canada and ship these goods to purchasers in Canada on a timely basis after the goods have been sold through the platforms.

While applicable duties and taxes are levied at the border on the value of the goods at the time of importation, the GST/HST is not consistently charged on the final price paid for the goods when they are subsequently sold to Canadians through distribution platforms and fulfillment warehouses located in Canada. This means that the difference between the value at the time of importation and the final price paid escapes the GST/HST. Although these goods are situated in Canada at the time of sale, there is generally no requirement under the current rules for the non-resident vendor, or distribution platform operator facilitating the sale, to collect or remit the GST/HST when the goods are sold to a purchaser in Canada. This is because the non-resident third-party vendor is generally not considered to be carrying on business in Canada and the distribution platform operator is not considered to be the supplier of the goods.

In contrast, vendors situated in Canada, including those selling goods through distribution platforms and fulfillment warehouses in Canada, are generally required to collect and remit the GST/HST on the final price paid for the goods when sold to a purchaser in Canada. This situation creates a competitive inequity for resident vendors and represents a gap in the rules resulting from the new commercial and retail landscape of the digital economy.

In order to level the playing field between resident and non-resident vendors, help ensure that the GST/HST is collected in an effective and efficient manner, and protect the integrity of the GST/HST base, the Government proposes to:

• require distribution platform operators to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by non-registered vendors through distribution platforms;
• require non-resident vendors to register under the normal GST/HST rules and to collect and remit the GST/HST in respect of sales of goods that are located in fulfillment warehouses in Canada (or shipped from a place in Canada to a purchaser in Canada), when those sales are made by the non-resident vendors on their own (i.e., they are not made through a distribution platform); and
• require fulfillment businesses in Canada to notify the CRA that they are carrying on a fulfillment business and to maintain records regarding their non-resident clients and the goods they store on behalf of their non-resident clients.

The following framework outlines how the GST/HST would apply under this proposal.

• Duties and taxes levied at the border: All goods that are imported into Canada will continue to be subject to applicable duties and taxes on the value of the goods at the time of importation. In particular, applicable duties and taxes will continue to be levied at the border on:
  • goods that are imported into Canada for storage in a fulfillment warehouse or any other place in Canada for subsequent sale and delivery to a purchaser in Canada; and
  • goods that are sold and shipped from outside Canada directly to a purchaser in Canada (e.g., sent by mail or courier and not stored in a fulfillment warehouse in Canada after importation and prior to sale).
• Platform operator deemed supplier: Distribution platform operators (whether resident or not) would be deemed to be the supplier in respect of sales they facilitate by non-registered vendors (whether resident or not) of goods that are located in fulfillment warehouses in Canada or shipped from a place in Canada to a purchaser in Canada (hereinafter referred to as a “qualifying supply”). Distribution platform operators would be required to collect and remit the GST/HST on the final sale price of the goods for which they were deemed to be the supplier.
  • For the purposes of this proposal, a distribution platform operator would be a person that controls or sets the essential elements of the transaction between the third-party vendor and the purchaser, for example, by providing listing services for the sale of goods and setting payment terms and delivery conditions. If no such person exists, the operator would be a person that is involved, directly or through arrangements with third parties, in collecting, receiving or charging payment for the sale and transmitting payment to the third-party vendor. However, a distribution platform operator would not include a person that operates a website that simply allows vendors to list their goods for sale, such as a classified or advertising website, or is solely a payment processor.
  • Distribution platform operators would be required to collect and remit the GST/HST on all of their qualifying supplies, including those made through their platforms by non-registered third-party vendors, regardless of whether the supply is made to a consumer or a purchaser that is registered for the GST/HST.
  • Distribution platform operators would not be deemed to be the supplier in respect of sales they facilitate by registered third-party vendors (whether resident or not). Where a third-party vendor is registered for the GST/HST, the third-party vendor would remain liable for its GST/HST obligations in respect of its platform sales.

As a result, the GST/HST would apply to platform sales of goods located in Canada by both registered and non-registered third-party vendors, regardless of the residency of the platform operator or third-party vendor. This would help ensure a more equitable tax treatment of registered and non-registered vendors, as well as of resident and non-resident businesses.

• Platform operator registration threshold: Distribution platform operators (whether resident or not) would be required to register under the normal GST/HST rules and to collect and remit the GST/HST if their total qualifying supplies, including those made through their platforms by non-registered third-party vendors, to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.
• Recovery of tax on inputs: Registered distribution platform operators would be eligible to claim input tax credits in respect of the tax paid at the border by non-registered third-party vendors that import their goods into Canada and sell their goods through distribution platforms (i.e., there would be a flow through of the input tax credits). Registered third-party vendors would be eligible, as under the existing GST/HST rules, to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, including tax paid at the border.
• No tax on platform services: Distribution platform operators would be deemed to not have made a supply to the non-registered third-party vendor of services relating to the deemed supply of goods made through the platform. This proposed deeming rule recognizes that non-registered third-party vendors are unable to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, and helps avoid the embedding of the GST/HST in the final price of goods for which the distribution platform operator would be deemed to be the supplier.
• Drop shipment exception: The GST/HST drop shipment rules are a key way in which non-registered non-residents obtain GST/HST relief in commercial transactions and activities. This proposal would be designed to ensure that it would not conflict with the existing drop shipment rules. As part of this proposal, GST/HST relief would be provided under the drop shipment rules where a non-registered non-resident provides a certificate to a service provider or vendor of goods acknowledging that a registered distribution platform operator was deemed to sell the goods and required to collect tax.
• Platform operator information reporting obligations: To assist the CRA in the administration of the GST/HST, distribution platform operators would be required to report information to the CRA on the third-party vendors using their platforms.
• Non-resident vendor registration and collection obligations: Non-resident vendors that make sales of goods without the use of a distribution platform (e.g., by offering and selling the goods through their own website directly to Canadians) would also be required to register under the normal GST/HST rules if their total qualifying supplies to purchasers in Canada that are not registered for the GST/HST (e.g., consumers) exceed or are expected to exceed $30,000 over a 12-month period.
  • Non-resident vendors would be required to collect and remit the GST/HST on all of their supplies made in Canada, regardless of whether the supply is made to a consumer or purchaser that is registered, and would be eligible under the existing GST/HST rules to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, including tax paid at the border.
• Fulfillment business reporting and record keeping obligations: To assist the CRA in the administration of the GST/HST in respect of sales made by non-residents through fulfillment warehouses in Canada, persons carrying on a fulfillment business in Canada would be required to notify the CRA that they are carrying on a fulfillment business and maintain certain records on their non-resident clients.
  • For the purposes of this proposal, a person would carry on a fulfillment business if they provide services of storing goods in Canada (other than services that are incidental to a freight transportation service) that are offered for sale by non-resident persons.

Coming into Force

The proposed new rules would generally apply to supplies made on or after July 1, 2021 and supplies made before July 1, 2021 if all of the consideration is payable on or after July 1, 2021.

GST/HST on Platform-based Short-Term Accommodation

The GST/HST applies to supplies of short-term accommodation. For GST/HST purposes, short-term accommodation generally includes a residential complex or a residential unit that is rented to a person for a period of less than one month.

The short-term accommodation sector increasingly includes individual property owners renting out their residences or other residential property they own, or rooms within their residences or other residential property they own. These rentals are often made through digital platforms that list properties and facilitate the acceptance and processing of payments between the property owner and the customer. In many cases, these platforms act as the primary means of contact between the customer and the property owner. Under the current GST/HST rules, the property owner is generally considered to be making the supply of the short-term accommodation.

The increasing popularity of the use of digital platforms to supply short-term accommodation poses a number of challenges for GST/HST compliance and raises questions of fairness between different suppliers of short-term accommodation.

• Some of the property owners operate on a small-scale basis and are likely not required to collect the GST/HST on the rentals. To limit administrative and compliance costs for part-time or very small scale enterprises, persons that have annual taxable supplies of $30,000 or less are generally not required to register for and collect the GST/HST.
• Other property owners that operate on a larger scale – offering multiple properties for rent on a regular basis – may not be aware of their requirement to register for and collect the GST/HST.
• The digital platforms that facilitate these rentals are often not responsible for accounting for the supply of the short-term accommodation under the current GST/HST rules.

In order to ensure that the GST/HST applies consistently and effectively with respect to supplies of short-term accommodation in Canada facilitated by platforms, the Government proposes to apply the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform (hereinafter referred to as an “accommodation platform”). Under the proposal, the GST/HST would be required to be collected and remitted on short-term accommodations supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator as follows:  

• The property owner (or person responsible for providing the accommodation – responsible person), where the owner (or responsible person) is registered for the GST/HST.
• The accommodation platform operator, where the property owner (or responsible person) is not registered for the GST/HST. In these circumstances, the accommodation platform operator would be deemed to be the supplier of the short-term accommodation. This approach recognizes their necessary and fundamental role in making these supplies, and limits administrative and compliance costs for the parties involved.

The following framework outlines how the GST/HST would apply under this proposal.

General Framework

• Taxable short-term accommodation provided through a platform: The GST/HST would apply to all taxable supplies of short-term accommodation in Canada that are facilitated by an accommodation platform operator. Taxable short-term accommodation would generally include a rental of a residential complex or a residential unit (or part of a unit) to a person for a period of less than one month where the price is more than $20 per day.
• Supplies by registered GST/HST operators: Underlying third-party suppliers of short-term accommodation (i.e., property owners or responsible persons) who are registered for the GST/HST would continue to be required to account for the tax on their supplies (i.e., to charge, collect and remit the GST/HST) that are facilitated by an accommodation platform operator.
  • Under the present GST/HST rules, a property owner (or responsible person) that makes over a 12-month period more than $30,000 in taxable supplies, including any supplies of short-term accommodation in Canada facilitated by an accommodation platform operator, is required to register for the GST/HST and to collect and remit the tax on their taxable supplies in Canada.
• Accommodation platform operator deemed to be supplier: The operator of an accommodation platform that facilitates the supply of short-term accommodation in Canada by third parties that are not registered for the GST/HST would be deemed to be the supplier of the accommodation for purposes of the GST/HST.
  • For the purposes of this proposal, an accommodation platform operator would be a person that controls or sets the essential elements of the transaction between the third-party vendor and the customer, for example, by providing listing services in respect of supplies of short-term accommodation in Canada and setting payment terms and conditions. If no such person exists, the operator would be a person that is involved, directly or through arrangements with third parties, in collecting, receiving or charging payment in respect of supplies of short-term accommodation in Canada and transmitting payment to the third-party vendor. However, an accommodation platform operator would not include a person that operates a website that simply allows vendors to list their properties for short-term rental, such as a classified or advertising website, or is solely a payment processor.
• Registration and collection requirement for accommodation platform operators: An accommodation platform operator that facilitates or expects to facilitate over a 12-month period more than $30,000 in taxable supplies of short-term accommodation in Canada where the underlying third-party suppliers of the accommodation are not registered for the GST/HST would be required to register for and collect and remit the GST/HST on such supplies.
  • An accommodation platform operator carrying on business in Canada that is required under the existing rules to register for the GST/HST will continue to be required to register under the normal GST/HST rules.
  • A non-resident accommodation platform operator not carrying on business in Canada would be able to use a simplified registration/remittance system, as outlined below.
• Tax rate: Suppliers of taxable short-term accommodation in Canada, including accommodation platform operators, would need to determine the rate of the GST/HST that applies and to charge and collect tax at the correct rate. The tax rates that currently apply are as follows:
  • 5 per cent if the short-term accommodation is situated in Quebec, Manitoba, British Columbia, Saskatchewan, Alberta, Yukon, the Northwest Territories or Nunavut;
  • 13 per cent if the short-term accommodation is situated in Ontario; and
  • 15 per cent if the short-term accommodation is situated in Nova Scotia, New Brunswick, Prince Edward Island or Newfoundland and Labrador.
• No tax on platform services to non-registered underlying suppliers: Some accommodation platform operators may charge service fees to non-registered third-party property owners/suppliers in respect of the supplies of short-term accommodation in Canada that they facilitate. Accommodation platform operators registered for the GST/HST would be deemed to not have made a supply of services to the non-registered third-party property owner/suppliers of short-term accommodation in Canada relating to facilitating the supply of the accommodation. This proposed deeming rule recognizes that non-registered third-party property owners/suppliers are unable to claim input tax credits in respect of the tax paid on inputs used in their commercial activities, and helps avoid the embedding of the tax in the final price of the accommodation for which the platform operator is deemed to be the supplier.
• Tax on platform’s guest fees: Some accommodation platform operators may charge the guest who is acquiring the short-term accommodation a service fee or commission for the services they provide in helping the guest to find and book an accommodation and in facilitating the transactions between the guest and the third-party property owner/supplier. The GST/HST would be applicable on the platform’s guest fee to a guest that is in respect of taxable short-term accommodation property situated in Canada, and the rate of GST/HST would be based on the location of the property in Canada (ensuring the same rate of tax applies on the guest fee as on the accommodation).
• Platform operator record keeping obligations: To assist the CRA in the administration of the GST/HST in respect of supplies of short-term accommodation in Canada, accommodation platform operators would be required to maintain records and report information to the CRA, including information on the underlying third-party property owners/suppliers using their platforms.

Simplified Requirements for Non-Resident Platforms

To facilitate compliance with these requirements, a simplified GST/HST registration and remittance framework would be available to non-resident accommodation platform operators that are not carrying on business in Canada.

The proposed new simplified system would include the following key features. (Unless otherwise noted, the references hereinafter to ‘non-resident accommodation platform operators’ are to those that are not carrying on business in Canada and have not registered under the normal GST/HST rules.)

• Simplified online registration and remittances: An online portal would be available for simplified GST/HST registration and remittances by non-resident accommodation platform operators that facilitate taxable supplies of short-term accommodation in Canada where the underlying third-party property owners/suppliers of the accommodation are not registered for the GST/HST.
• Business-to-consumer supplies only: Non-resident accommodation platform operators using the simplified registration system would be required to collect and remit the GST/HST on supplies of taxable short-term accommodation in Canada made to consumers. Non-resident accommodation platform operators using this system would not be required to collect and remit the GST/HST on their supplies to a business. For these purposes, an entity or person that is registered for the GST/HST would be considered a business and any other entity or person would be considered a consumer. Non-resident accommodation platform operators would rely on the GST/HST registration number of a business as proof of its business status.
• No input tax credits: Non-resident accommodation platform operators using the simplified registration system would not be able to claim input tax credits to recover any GST/HST paid on their business inputs. Those non-resident platform operators that wish to claim input tax credits for the GST/HST paid may register under the normal GST/HST registration process.

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of short-term accommodation facilitated by a non-resident accommodation platform operator that is registered under the simplified GST/HST registration/remittance system, unless the purchase is for use exclusively in the business’s commercial activities.

To help protect the integrity of the proposed simplified GST/HST framework, a penalty would apply if a person provides a GST/HST registration number to a non-resident accommodation platform operator to evade, or attempt to evade, tax on the purchase of short-term accommodation in Canada acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number to such a non-resident accommodation platform operator and is nevertheless charged the GST/HST on the supply of short-term accommodation, the business would be able to request a refund of the tax from the non-resident accommodation platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of short-term accommodation in Canada to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

Next Steps

Recognizing the Government’s commitment to ensuring that the Canadian tax system is effective and efficient, the Government is seeking stakeholders’ views and comments on the three above proposals.

The Government invites interested parties to submit comments on these proposals and the associated draft legislation set out below by February 1, 2021. Please send your comments to: fin.gsthst2020-tpstvh2020.fin@canada.ca.

• Previous
• Table of Contents
• Next