From January 1, 2019, businesses selling digital services to customers in the Canadian province of Québec will have to apply, collect, and remit Québec Sales Tax (QST).
Québec’s tax authority, Revenu Québec, released some very detailed information ahead of the extension of QST to cover supplies from non-resident businesses. Québec has introduced a simplified registration system, a digital sales threshold to registration, and identified what digital services are affected by this extension of QST.
Québec’s digital taxation: a first for Canada
Québec has extended QST to the non-resident suppliers of digital services before any move by Canada on a federal level. They have done so to level the playing field between domestic and non-resident digital service suppliers but also to increase their tax base. These two reasonings are also the basis for similar global implementations of such destination-based tax rules.
This digital taxation move by the Québecois legislators is in line with growing international trends on the taxation of digitalisation. To understand the reasons behind their move we can reference Québec’s 2018-2019 budget that states:
“Today, e-commerce is changing the way Quebecers acquire movable property and services. E-commerce enables them to acquire movable property and services from suppliers located outside Québec just as easily as if the suppliers were located in Québec.”
It goes on to add a global dimension to their extension of QST to supplies by non-resident digital businesses to Quebecers, referencing work by the Organisation for Economic Cooperation and Development (OECD):
“[R]ecommendations made by the OECD as part of its work to address base erosion and profit shifting (BEPS), in a context of multijurisdictional transactions, were taken into consideration:
- Require suppliers outside Canada to register for the value-added tax (VAT) system of the jurisdiction of destination in which they supply property or services, and to collect the applicable tax and remit it to that jurisdiction;
- Implement a simple, sufficiently clear and accessible system so that suppliers
outside Canada can easily comply with their tax obligations.”
Quebec digital sales tax threshold level
As the global digital tax revolution reached Québec one of the key pieces of information is the presence of a $30,000 Canadian dollar (CAD) sales threshold.
Once a business exceeds this threshold on taxable supplies to customers in Québec then they will have Québec digital sales tax compliance obligations.
There is, however, a phased approach to businesses impacted by this threshold. Non-resident digital businesses must comply from January 1, 2019. Canadian digital businesses (those based outside of Québec province) will have until September 1, 2019, to amend their internal business operations and comply.
Note that, according to Revenu Québec’s own website, registration will also be mandatory for certain digital platforms acting as an intermediary between suppliers and consumers.
To ensure that Québec Sales Tax (QST) is collected (at a rate of 9.975%) and remitted in the context of the digital economy, the Québec government announced in its 2018 budget the implementation of a new registration system.
Tax on digital services in Quebec: what is affected?
The requirement to register under this new registration system will also apply to digital property and services distribution platforms (“digital platforms”) with respect to taxable supplies of incorporeal movable property or services received by specified Québec customers.
Revenu Québec defines a “digital platform” as follows:
- A digital platform will mean a platform that provides a service to non-resident suppliers, by means of e-communication (e.g. an application store or a website), enabling them to make taxable supplies of incorporeal movable property or services in Québec to specified Québec consumers.
Additional definitions include:
- Carrying on e-commerce: earning income from business transactions conducted over the Internet, telephone or fax, or using any other electronic device.
- Incorporeal movable property: movable property that does not have a physical existence and money
And this is precisely what the Québec legislators have done. They have introduced a simplified QST registration system for non-resident digital businesses with compliance sought from January 1, 2019.
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