DIGITAL GIANTS FACE FEDERAL TAX CHANGES.
AS WE HAVE LEARNED FROM PREVIOUS RECESSIONS, THE RISK OF PROVIDING TOO LITTLE SUPPORT NOW OUTWEIGHS THAT OF PROVIDING TOO MUCH. WE WILL NOT REPEAT THE MISTAKES OF THE YEARS FOLLOWING THE GREAT RECESSION OF 2008. — FINANCE MINISTER CHRYSTIA FREELAND
OTTAWA • The federal government will soon force foreign digital vendors like Netflix and Amazon to collect sales taxes on a bevy of products and services sold to Canadians, while also promising a much-requested new tax on web giants by 2022.
The announcement, included in Monday’s fall economic statement, comes less than two weeks after the auditor general told MPs that Canada is losing out on at least $247 million annually in unpaid Goods and Services Tax/Harmonized Sales Tax (GST/HST) on digital products and services such as streaming or mobile apps.
“Under current rules, foreign-based digital businesses can sell their goods and services to Canadians without charging the (GST/ HST), which puts the burden on Canadian consumers to remit the sales tax,” the document reads.
“This gives foreign-based digital corporations an unfair advantage, and undercuts the competitiveness of Canadian companies. It also deprives the government of tax revenues that could be used to better the lives of everyone.”
The Fall Economic Statement also promises:
An undetailed tax on companies offering digital services, such as Google or Facebook, that would be put in place starting Jan. 1, 2022, and bring in $3.4 billion over five years.
New measures to ensure sales taxes are paid on shortterm rentals booked through online platforms (like Airbnb).
New taxes on uninhabited real estate used by rich foreigners.
Significant investments in the Canada Revenue Agency’s fight against offshore tax evasion and aggressive tax avoidance that the government says will return $1.2 billion to the nation’s coffers over five years.
All these measures by the Trudeau government aim to “level the playing field” between foreign and Canadian companies, notably by making sure that sales taxes are applied equally to “all goods and services consumed in Canada”.
One such measure is to update Canada’s “outdated” tax rules to force foreign digital service companies like Netflix or Spotify to charge and remit sales taxes on their online products to the CRA starting on July 1, 2021.
That would put them on equal footing with their Canadian counterparts (such as Bell’s Crave or Videotron’s Club Illico), who have been forced to charge GST/HST for years now.
The government estimates this will bring in an additional $1.2 billion by 2027.
Currently, foreign-owned vendors and digital marketplaces also have “no requirement” to collect and remit sales taxes when their goods are sold in Canada, even if the products are stored in a warehouse on Canadian soil.
“By comparison, Canadian vendors using digital platforms and fulfilment warehouses in Canada are required to collect the GST/ HST on the final price paid for their goods. This is putting Canadian vendors at a disadvantage,” the economic statement reads.
That too is about to change — at least in part — the government says, and the country’s coffers should be $1.6 billion richer for it by 2027.
Starting July 1, 2021, foreign vendors will have to charge sales taxes on online sales to Canadians, but only as long as the products are originating from warehouses in Canada. Sales taxes on products purchased online originating from outside the country will still have to be collected at the border by courier companies, a situation denounced by the auditor general in a report last year.
A brief two- paragraph section of the 237-pages economic statement also sheds some light on the government’s plan to further tax web giants. The Liberals say they will impose a temporary new tax starting on Jan. 1, 2022, that will reap $3.4 billion in its first five years.
The tax will last until members of the Organization for Economic Co-operation and Development (OECD) reach a consensus on how best to tax the revenues of powerful multinational such as Alphabet (Google’s parent company) or Facebook.
Canada originally promised to wait until that consensus was reached before acting, but the government says its patience is wearing thin.
“The government remains committed to a multilateral solution, but is concerned about the delay in arriving at consensus,” the report reads.
The Trudeau government is also going after the real estate market.
Firstly, it will demand that online short-term accommodation platforms such as Airbnb begin charging sales taxes on rentals of Canadian properties. This will bring the rules in line with what is demanded of the traditional hotel business.
Secondly, it will propose a new tax “over the coming
GOVERNMENT REMAINS COMMITTED TO A MULTILATERAL SOLUTION.
year” on unoccupied homes purchased by wealthy foreigners living abroad as a means to “passively store” their wealth.
In order to ensure that all new and old tax obligations are respected, the government plans on beefing up the CRA’s auditing and investigating power as well.
The Liberals say they will invest $606 million over five years starting in 2021-2022 to boost the CRA’s ability to detect and fight offshore tax evasion and aggressive tax avoidance. The government hopes to recoup $1.4 billion in unpaid taxes over the same period.
“Specifically, the CRA will hire additional offshore-focused auditors to focus on individuals who avoid taxes by hiding income and assets offshore, enhance the audit function targeting higher- risk tax filings … and strengthen its ability to fight tax crimes such as money laundering and terrorist financing,” details the economic statement