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  • Samer Tohme

Canada: Sales, Excise, And Digital Services Tax budget update

Chrystia Freeland, Deputy Prime Minister, and Finance Minister, presented the federal budget on 19 April 2021. ("Budget 2021").

Budget 2021 verified the policies revealed on 30 November 2020 in Supporting Canadians and Combating COVID-19: Fall Economic Statement 2020 (the "FES 2020"). The guidelines and policies were about e-commerce purchases and the digital revolution but made several changes to the recently published draft legislation. Additionally, it discussed the new digital services tax ("DST"), revealed in the FES 2020.

Budget 2021: amended the input tax credit details criteria ("ITC"); extended the accessibility of new residential rebates.

Furthermore, Budget 2021 includes the amendments made to the input tax credit details criteria ("ITC"), extended new housing discount availability; raised excise duty rate on cigarettes, established an excise duty policy on smoking items, and explained eligibility for the regional usage exemption on goods bought by the Provinces; imposed a premium retail selling tax on new luxury vehicles (over $100,000), private aircraft and leisure boats (over $ 250,000); declares the proposed nationwide proposed tax of 1 percent on non-resident, non-Canadian held residential real-estate that is empty or under-used and announces several regulatory steps.

The GST/HST and e-commerce, DST, ITC, and new housing rebate schemes are summarized here.

E-commerce and GST/HST

We commented earlier on GST/HST initiatives for the digital economy. In general, the proposals announced earlier in FES 2020 concern non-resident Canadian retailers, online market facilitators/distributors, fulfillment companies, online network operators, and third-party real-estate stakeholders who do no operate the business in Canada.

Budget 2021 states that the draft reforms issued under the FES 2020 will remain substantially unchanged and will affect 1 July 2021. However, specific changes to such recommendations and the relevant draft regulations may be rendered following input from stakeholders.

Rules regarding safe harbor: Third-party providers, collectively and severally or solidly, are responsible for accumulating and sending fees to a platform user. The third-party supplier provides the operator with inaccurate facts. Moreover, where the platform operator depended somewhat on the knowledge supplied by a third party supply, the responsibility of a platform operator shall be restricted.

Eligible Deductions: A digital product or service provider enrolled under the current streamlined GST/HST scheme would also be able to subtract bad debt sum and demand such rebates as provincial HST point-of-sale rebates.

Determination of the threshold number: The $30,000 threshold number for deciding when a non-resident vendor/platform user is eligible to register under the updated, streamlined GST/HST System shall not be included in the taxable suppliers of zero-rated digital goods or services.

Return of facts to the platform provider: For platform operatives that are needed to file an annual return on records, this filing must only be completed by those platform operators who have been or are required to be registered for GST/HST.

Minister's authority to register an individual: Similar to a Minister's authority to register a person under the GST/HST regime in force, the Minister, would have the right to register a non-resident seller or network operator to enroll under the revised, simplified system.

Budget 2021 further notes that if the companies and the platform providers involved demonstrate they have taken appropriate action but for organizational justification are unable to fulfill their commitments, the Canada Revenue Agency will adopt a "practical" enforcement strategy during a 12-month adjustment span.

Tax on Digital Services

First declared in FES 2020 was the implementation of a DST. While Canada preferred to have a multilateral approach, it is suggested that DST should be introduced on 1 January 2022 before the companies concerned for an adequate multilateral approach came into effect.

Any of the specifics announced in Budget 2021 are summarized as:

The base and the rate. On in-scope income, the tax rate would be 3%. "Revenue" in this way should not contain any related VAT or sales tax. Only in-scope sales associated with Canadian consumers that exceed a $20 million mark for an individual or industry community would be subject to the DTS.

In-scope revenue, revenue sourcing, and consumer position: The DST will extend to those digital resources that rely on Canadians' participation, info, and material contributions. Digital marketplaces, social networking, online advertisements, and usage data also contribute to this. When an entity's income is split into DST-covered operations and non-DST-covered activities, the in-scope revenue correlated with Canadian consumers must be calculated fairly. Income procurement concepts are outlined in Budget 2021. The user's usual residence or place of business would be determined using details readily accessible to the digital service provider, like billing address or IP address.

Taxpayers: The DST is proposed to extend to major international and domestic companies, regardless of business vehicles like partnership, corporation, and trust. The DST would be applied in a given calendar year on every company or business sector with global sales of $750 million the previous calendar year and in-scope revenue related to Canadian consumers of more than $20 million.

Income taxation care purposes. The DST deductibles would be calculated based on general guidelines. The amount of DST owed would not be credited against the amount of Canadian income tax owed.

The administration: A company subject to the DST must submit an annual return and make a single deposit per year. The calendar year is suggested as the reporting year. One individual will be appointed to offer the DST return and compensate the DST debt on behalf of the other participants in a company party. Furthermore, each member of the company community is agreed to be collectively and severally responsible for any DST owned by another member of the community.

Stakeholders have until 18 June 2021 to request written comments. The proposed law is due to be published this summer.

Taking Advantage of Input Tax Credits

Certain details criteria must be met to assert an ITC. The quantity and type of details needed for a specific service are determined by the amount charged or payable for that supply.

In the case of products of $100 or more (up from $30), the name of the provider or distributor, their GST/HST registration number, and the sum of GST/HST paid would now be needed. In the case of items of $500 or more (nearly equivalent to $150), the recipient's name, conditions of payment, and a summary of each property or service are now needed.

The GST/HST amount of the retailer or an agent is one of the necessary information for products. In general, an "intermediary" is an individual who serves as the supplier's representative or who induces or encourages the person's production of the supply. For the objectives of the ITC details regulations, Budget 2021 recommends that a billing agent be considered as an intermediary.

New conditions for refunding housing

Budget 2021 aims to increase the current housing reimbursement eligibility. Under the current rules, when two or more people jointly buy a new house, they must either meet the requirement to purchase the new home as his principal residence or as his primary residence. The latest housing rebate is recommended if one of the buyers satisfies the requirement.

This amendment would also extend concerning owners' residences, cooperative housing shares, and houses established on rented properties.

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