In March of 2018, the province of Quebec introduced a proposal to vastly expand the requirements for non–residents of Quebec to collect and remit the Quebec Sales Tax (“QST”) on sales of services and intangible property. Although no draft legislation has yet been released, these proposals would require both Canadian and non–Canadian suppliers of intangible property or services, whether delivered through a digital platform or not, to register as a collector of the Quebec Sales Tax, and to collect, report and remit such tax on all such sales to unregistered Quebec residents.
These proposals follow the OECD recommendations designed to address the tax challenges associated with the digital economy globally, and appear to be directed primarily at B2C transactions, such that only non–residents of Quebec that make sales to unregistered Quebec resident consumers will be subjected to these new rules. Further, Quebec has indicated that there will be a $30,000 threshold (calculated on a rolling basis over the previous 12–month period), below which registration will not be required.
Although there are many layers of complexity that will need to be dealt with as the legislation is drafted, Quebec has already made it clear that the tax collected under this new system, as well as those collecting such tax, will not be treated the same as the traditional amounts of QST or the traditional QST collectors. For example, collectors under this new regime will not be entitled to recover any of their own QST costs by way of input tax refund.
Further, it appears that Quebec will also require certain digital intermediaries (e.g. a third party that provides the digital platform to enable supplies of intangibles) to register and collect the QST on such taxable supplies. This imposition of a compliance burden on such third party intermediaries, appears similar to similar compliance burdens placed on intermediaries in other value added tax jurisdictions (e.g. in Brazil, credit card companies are obligated to collect, report and remit certain sales taxes on payments made by resident Brazilians to non–resident suppliers of intangibles and services). Although we note that the Quebec proposals appear to exempt payment processors from such compliance obligations, we questions whether Quebec (and possibly Canada) will continue to move in this direction in order to more fully tax the digital economy.
As can be imagined, there will be many difficulties faced by Quebec in the implementation of this new form of QST, not the least will be ensuring compliance by non–residents. Although it is likely that Quebec will effectively be able to force compliance by Canadian suppliers that do not otherwise carry on business in Quebec, there will likely be significant challenges in enforcing such registration requirements of non–Canadian suppliers. Similarly, there will likely be significant challenges faced by such non–resident suppliers in determining whether they are making sales to consumers that are actually subject to this tax.
On December 15, 2017, the Canada Revenue Agency (the “CRA”) released new guidelines on the rules applicable to voluntary disclosures that are made (or for which the name of the taxpayer is disclosed) on or after March 1, 2018. Like the earlier draft guidelines, which were released on July 9, 2017, the new guidelines include a separation of the rules applicable to income tax voluntary disclosures and the rules applicable to disclosures of errors relating to GST/HST and other non-income taxes. Below is a summary of the new voluntary disclosures program for GST/HST (“VDP”).
The voluntary disclosures program allows taxpayers to make disclosures to the Canada Revenue Agency to correct inaccurate or incomplete information, or to disclose information not previously reported. We understand there were concerns within the CRA that the existing program was overly generous to participants in the program (as compared to taxpayers who had been fully compliant), and proposals to revise the program have been in the works for some time now. In this regard, the CRA issued an earlier version of the VDP guidelines for comments on June 9, 2017, with an initial proposed implementation date of January 1, 2018.
There was much speculation that this implementation date would be postponed, as well as hope that the final guidelines would address concerns expressed by many tax practitioners that certain proposed measures in the June 9, 2017 version were too harsh and would lead to few taxpayers choosing to avail themselves of the program. In the result, the new VDP guidelines includes significant improvements from the July 9, 2017 version. As compared to the program that is currently in place, the new VDP is more beneficial for taxpayers in some cases, and worse for taxpayers in others.
The new VDP includes three categories for disclosures, depending on the taxpayer’s circumstances.
Category 1 (GST/HST Wash Transactions Disclosures)
Category 1 disclosures include disclosures of errors relating to qualifying GST/HST “wash transactions”. This generally covers situations where a taxpayer who supplied goods or services fails to collect and remit tax as required, and the recipient would have been entitled to full input tax credits. Wash transactions will continue to be eligible for full relief from interest and penalties under the new VDP. As for the relevant period, these disclosures will require disclosure of previously inaccurate, incomplete or unreported information for the four calendar years before the date the VDP application is filed.
There has been much speculation on how Canada will tax cannabis, which is expected to be legalized for retail sale in Canada by July 2018. The much anticipated draft tax legislation was released by the Department of Finance on Friday November 10, 2017, and is out for consultation until December 7, 2017.
Proposed Tax Regime
Under the proposed cannabis tax regime, most supplies of cannabis will be subject to GST/HST (at rates currently ranging from 5-15% across Canada). Cannabis, both for recreational or medical use, will also be taxed under the Excise Act, 2001 (Canada) (the “Act”), which currently imposes federal excise duty on spirits, wine and tobacco product made in Canada. Both taxes on cannabis will be administered by the Canada Revenue Agency.
Similarly to the current GST/HST regime, the provinces and territories will be offered the option of joining the federal tax regime for cannabis taxation, in which case the excise duty on cannabis will be made up of the federal rate, plus an additional rate for the participating province or territory. The division of tax revenues is currently under discussion between the federal government and the provinces, which will be responsible for controlling the distribution and retail sales of cannabis in each province. In this regard, the federal government has indicated its goal of setting the maximum total excise duty rate at the greater of $1 per gram or 10 per cent of the sale price of the product.