Impacts of the 2021 Federal Budget on indirect taxes

The Federal Government tabled its first Budget in two years on April 19, 2021. The over 700-page document contained numerous measures to support Canadians through the COVID-19 pandemic and into recovery, including announcements specifically dealing with indirect taxes.

E-commerce simplified framework

One of the key items in the Budget impacting indirect tax was the new simplified framework for non-residents. This affects those who are making digital supplies of services, goods and online accommodations into Canada.

Budget 2021 provided some qualifications and clarifications to the legislation that was proposed in the Fall 2020 Economic Statement (see New tax rules on goods purchased online to level e-commerce playing field). These include joint liability for platform operators and non-resident vendors.

One clarification was that the non-residents registered under this simple system will be allowed to claim bad debt deductions, as well as certain point-of-sale rebates. If you recall, this simplified system for non-residents will allow them to collect the tax and remit it, but not to claim any of the tax credits.

Another clarification about the simplified system is with respect to the threshold amount. The threshold for registration under this new system will be $30,000, as it is under the regular system. However, where a non-resident also makes zero-rated supplies, they will not need to include these in calculating their threshold.

As noted in the Fall Economic Statement, platform operators will be required to gather and submit information on non-resident vendors using their platform. The Budget confirmed this will be in the form of an annual information return.

The other clarification made in the Budget is that Minister of National Revenue will have the authority to register persons under this new system if they meet the conditions for registration. A piece of welcome news in the Budget was the Canada Revenue Agency will be taking a practical approach in their reviews over the first year, as non-residents get their systems in place and their registrations set up.

Digital services tax

This will be a three-percent tax on specified revenue of digital services. The target of this new tax will be large foreign and domestic corporations that earn revenue from engagement with online users in Canada.

The Government also provided more detail on the input tax credits available to Canadian businesses for GST / HST paid on business-related supplies. Documentation requirements will be eased slightly to allow a higher threshold for documentation. This is acknowledging documentation now comes in many different forms and not just a standard printed invoice.

Another change in the Budget is that where a billing agent is being used, it will be acceptable support if the purchaser obtains the billing agent’s name and GST number.

Housing, tobacco and luxury goods

Budget 2021 proposes to update the GST new housing rebate to be available where two or more individuals buy a new home together, as long as any one of those individuals is acquiring the new home as their primary residence.

Previously, to qualify for the rebate, everyone listed on title was required to be living in the home. Unfortunately, the threshold amounts for the rebate were not adjusted.

Additional excise duties on tobacco were introduced in the Budget, and a new excise duty on vaping products was proposed. The Government noted there will be a consultation process on the new tax prior to implementation in 2022.

Budget 2021 also proposes a tax on luxury goods, specifically automobiles, boats and airplanes. There are specific thresholds where this tax will apply, and it will be form part of the cost of the goods. This means the GST / HST will apply on the price of the goods inclusive of the new luxury tax.

Unproductive use of Canadian housing by foreign non-resident owners

This is a new proposed tax of one percent beginning in 2022 that will be applicable to non-residents who have property in Canada that is vacant or not otherwise being used. There will be certain exemptions, and more information will be provided by the Government over the next few months.