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Annex 4
Tax Measures: Supplementary Information

Overview

This annex provides detailed information on tax measures proposed in the Fall Economic Statement.

Table 1 lists these measures and provides estimates of their fiscal impact.

The annex also provides legislative proposals to amend the Income Tax Act, the Excise Tax Act and other related legislation as well as draft amendments to related regulations.

Table 1
Cost of Proposed Tax Measures1, 2
Fiscal Costs (millions of dollars)
2020–2021 2021–2022 2022–2023 2023–2024 2024–2025 2025–2026 Total
Income Tax Measures
Immediate Support for Families with Young Children3 580 1,775 - - - - 2,355
Registered Disability Savings Plan – Cessation of Eligiblity for the Disability Tax Credit
Employee Stock Options -55 -55
Agricultural Cooperatives: Patronage Dividends Paid in Shares 3 11 11 11 11 10 57.0
Emergency Business Supports
Canada Emergency Wage Subsidy Extension 14,790 - - - - - 14,790
Canada Emergency Rent Subsidy and Lockdown Support Extension 2,180 - - - - - 2,180
Sales Tax Measures
GST/HST Relief on Face Masks and Face Shields 20 75 - - - - 95
GST/HST on Cross-Border Digital Products and Cross-Border Services - -166 -243 -257 -267 -282 -1,215
GST/HST on Goods Supplied through Fulfillment Warehouses - -190 -275 -315 -360 -415 -1,555
GST/HST on Platform-based Short-Term Accommodation - -40 -65 -75 -85 -95 -360
1 A “–” indicates a nil amount, a small amount (less than $500,000) or an amount that cannot be determined.
2 Totals may not add due to rounding.
3 This includes the cost of the proposed increase in the Children’s Special Allowance.

Income Tax Measures

Immediate Support for Families with Young Children

The Canada Child Benefit (CCB) is a non-taxable benefit that is paid monthly and provides support for eligible families with children under the age of 18. The CCB is based on adjusted family net income with the benefit phase-out rate depending on the number of children in the family. For the 2020-21 benefit year (July 1, 2020 to June 30, 2021), the CCB provides a maximum benefit of $6,765 per child under the age of six and $5,708 per child aged six through 17. Families with less than $31,711 in adjusted net income in 2019 receive the maximum benefit for the 2020-21 benefit year. The phase-out rates and income thresholds are indexed to inflation annually.

In order to provide immediate support for families with young children, the Government proposes to amend the Income Tax Act to provide, in 2021, four payments of:

The first of these amounts would be payable after the enabling legislation is passed, with subsequent amounts payable in the first month of each remaining quarter (i.e., at the end of April, July and October 2021). These amounts would be payable to the individual who receives a CCB amount for a particular month, i.e., the primary caregiver of the child in January, April, July or October 2021.

Eligibility for these quarterly amounts would be based on whether an individual is entitled to a CCB payment in that particular month. If a family's adjusted net income is too high to receive the CCB in that month, they would not receive a quarterly amount. For the amounts that would be payable in the first quarter of 2021 and April, a family's adjusted net income is based on the family's net income in 2019. For the months of July and October, a family's adjusted net income is based on the family's net income in 2020. For example, if a family's net income is $130,000 for 2019 and $70,000 for 2020, the parent entitled to the CCB in respect of a child under the age of six would receive the additional quarterly amount of $150 once enabling legislation is passed and at the end of April and $300 at the end of July and October.

An amount would be payable in respect of a child for January, April, July or October if the child is under the age of six at the beginning of that month. For example:

The rules that apply to the CCB would generally also apply to these additional quarterly amounts. For example:

Shared-Custody Parents

If an individual is entitled to the CCB as a shared-custody parent in respect of a child under the age of six in a month for which a quarterly amount would be payable, this individual would receive half of the applicable quarterly amount in respect of each shared-custody child.

Retroactive Payments

Currently, an individual can apply to receive retroactive payments of the CCB in respect of a month on or before the day that is 10 years after the beginning of that month. In order to qualify for the additional quarterly amounts, however, an individual must be determined to be entitled to the CCB by the end of 2023

Children’s Special Allowance

The Government pays the Children’s Special Allowance in respect of children who are in the care of, and maintained by, a federal, provincial, territorial or First Nations agency or institution (e.g., a child protection agency). The Children’s Special Allowance provided in respect of a child is equivalent to the maximum CCB amount for an eligible child of the same age.

To ensure consistent treatment for children under the care of a child protection agency, the Government also proposes to provide equivalent quarterly amounts of $300 for each child under the age of six in respect of whom a Children’s Special Allowance is paid.

Consistent with the rules for the CCB, which provide that no CCB is payable for a month for a child in respect of whom a Children’s Special Allowance is payable for that month, no quarterly amount based on CCB entitlement will be payable when a quarterly amount is payable in respect of the same child based on eligibility for the Children’s Special Allowance for that month.

Registered Disability Savings Plan – Cessation of Eligibility for the Disability Tax Credit

Budget 2019 proposed changes to the Registered Disability Savings Plan (RDSP) regime for beneficiaries with episodic disabilities. These proposed changes include removing the time limitation on the period for which an RDSP may remain open after a beneficiary becomes ineligible for the disability tax credit (DTC) and further, modifying repayment obligations. Budget 2019 proposed that these changes would apply as of January 1, 2021. It also proposed that until the coming-into-force date of the measure, RDSP issuers would not be required to close an RDSP solely because the beneficiary is no longer eligible for the DTC.

The Government proposes to maintain the implementation timeline for this measure. Any excess repayments of Canada Disability Savings Grants and Canada Disability Savings Bonds in respect of withdrawals made after 2020 and before the measure is enacted would be returned to a beneficiary’s RDSP following enactment.

RDSP issuers will have the normal flexibilities with respect to time to implement these changes.

Modification to Improve Fairness

An RDSP issuer is required to set aside an amount (referred to as the “assistance holdback amount”) equivalent to the total Canada Disability Savings Grants and Canada Disability Savings Bonds paid into the RDSP in the 10 years preceding an event (e.g., a withdrawal or plan closure) or, in the case of a beneficiary who is no longer eligible for the DTC, the 10-year period preceding cessation of eligibility for the DTC, less any repayments of those amounts. This requirement ensures that RDSP funds are available to meet potential repayment obligations.

To allow beneficiaries who cease to be eligible for the DTC to have future access to the grants and bonds within their RDSPs that are within the assistance holdback amount, Budget 2019 proposed to modify the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount, depending on the beneficiary’s age, in the following manner:

These changes announced in Budget 2019 to the formula in the Canada Disability Savings Regulations for determining the assistance holdback amount could, however, result in a lesser amount of grants and bonds being held back from beneficiaries who become ineligible for the DTC after they attain 50 years of age than is currently held back from beneficiaries of the same age who remain DTC-eligible, or would be held back from beneficiaries of the same age who ceased to be eligible for the DTC at an earlier age.

To ensure more equitable treatment, the Government proposes an additional modification to the formula put forward in Budget 2019 for determining the amount of grants and bonds held back from a withdrawal, in the following manner:

Employee Stock Options

An employee stock option is a form of employment compensation that provides an employee with the right to acquire a share of a corporation at a designated price (the “strike price”).

When an employee acquires a share under an employee stock option agreement, the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the share (including the strike price and any other amount paid to acquire the option) is treated as a taxable employment benefit (an “employee stock option benefit”).

A stock option deduction equal to one-half of the employee stock option benefit is available to the employee, provided certain conditions are met. This deduction results in the employee stock option benefit effectively being taxed at the same rate as a capital gain.

While the stock option deduction can assist start-ups and emerging corporations to attract and retain highly skilled employees, the benefits of the deduction are not well-targeted and accrue disproportionately to a small number of high-income individuals employed by large, established corporations.

Budget 2019 announced the Government’s intention to move forward with changes to limit the benefit of the employee stock option deduction for high-income individuals employed at large, long-established, mature firms. The Government released draft legislative proposals in June 2019 and consulted stakeholders on the characteristics of start-up, emerging and scale-up corporations for the purpose of exempting such corporations from the new employee stock option tax rules.

The Government proposes to introduce the new tax rules for employee stock options, which are described in detail below.

New Tax Rules

$200,000 Limit

A $200,000 limit is proposed on the amount of employee stock options that may vest in an employee in a calendar year and continue to qualify for the stock option deduction. For the purpose of the $200,000 limit, the amount of employee stock options that may vest in any calendar year would be considered to be equal to the fair market value of the underlying shares at the time the options are granted. An option vests when it first becomes exercisable. The determination of when an option vests would be made at the time the option is granted. If the year in which the option vests is not clear, the option would be considered to vest on a pro-rata basis over the term of the agreement, up to a five-year period.

The $200,000 limit on the amount of employee stock options that may vest in any calendar year and qualify for the stock option deduction would generally apply to all stock option agreements between the employee and the employer or any corporation that does not deal at arm's length with the employer. If an individual has two or more employers that deal at arm's length with each other, the individual would have a separate $200,000 limit for each of those employers.

If the amount of stock options that may vest in a year exceeds $200,000, those employee stock options granted first would be the first to qualify for the stock option deduction. Where an employee has a number of identical stock options and some qualify for the existing tax treatment while others are subject to the new tax treatment, the employee would be considered to first exercise the stock options qualifying for the existing tax treatment.

Employee Tax Treatment

Where an employee exercises an employee stock option that is in excess of the $200,000 limit, the difference between the fair market value of the share at the time the option is exercised and the amount paid by the employee to acquire the share would be treated as a taxable employment benefit. The full amount of the employment benefit would be included in the income of the employee for the year the option is exercised, consistent with the treatment of other forms of employment income. The employee would not be entitled to the stock option deduction in respect of this employment benefit.

Charitable Donations

Under the current tax rules, if an employee donates to a qualified donee, such as a registered charity, a publicly listed share (or the cash proceeds from the sale of a publicly listed share) acquired under an employee stock option agreement within 30 days of the exercise of the option, the employee may be eligible for an additional deduction equal to one-half of the employee stock option benefit. As a result, where both the stock option deduction and the additional deduction in respect of a qualifying donation are available, the entire employee stock option benefit is effectively excluded from income.
If an employee donates a publicly listed share acquired under a stock option that is in excess of the $200,000 limit, the employee could be eligible for the charitable donation tax credit but would not be eligible for any deduction on any associated employee stock option benefit. Any capital gain that has accrued since the share was acquired under the stock option agreement would continue to be eligible for the full exemption from capital gains tax, subject to the existing rules.

Employer Tax Treatment

For employee stock options in excess of the $200,000 limit, the employer would be entitled to an income tax deduction in respect of the stock option benefit included in the employee’s income. The deduction may be claimed in the taxation year of the employer that includes the day on which the employee exercised the stock option.

There are currently a number of conditions that must be met for an employee to be eligible for the stock option deduction. These conditions would be required to be met for an employer to be entitled to a deduction under the new rules.

Employers subject to the new rules would be able to choose whether to grant employee stock options under the existing tax treatment, up to the $200,000 limit per employee, or whether to grant employee stock options under the new tax treatment (i.e., ineligible for the employee stock option deduction, and instead eligible for a deduction for corporate income tax purposes).

Employers subject to the new rules would need to ensure compliance with respect to the $200,000 limit. This would include a requirement that an employer notify its employees in writing whether options granted are subject to the new tax treatment. In addition, employers would be required to notify the Canada Revenue Agency if the options granted are subject to the new tax treatment.

Employers Subject to the New Tax Rules

The new rules would apply to employers that are corporations or mutual fund trusts.

Employers that are Canadian-controlled private corporations (CCPCs) would generally not be subject to the new rules.

Further, in recognition of the fact that some non-CCPCs could be start-ups, emerging or scale-up companies, non-CCPC employers whose annual gross revenue does not exceed $500 million would generally not be subject to the new rules.

Where employee stock options to acquire shares or units of an entity that is not the employer are granted to an employee, the new rules would apply in respect of those options if that entity does not deal at arm’s length with the employer and either the entity or the employer is subject to the new rules.

Employers that are not subject to the new rules would not be permitted to opt in to the new employee stock option tax rules.

Coming into Force

The new tax rules would apply to employee stock options granted after June 2021. The existing rules would continue to apply to options granted before July 2021 (including qualifying options granted after June 2021 that replace options granted before July 2021). 

Agricultural Cooperatives: Patronage Dividends Paid in Shares

Budget 2005 introduced a measure to provide a tax deferral that applies to patronage dividends paid by an eligible agricultural cooperative to its members in the form of eligible shares issued after 2005 and before 2016. Budget 2015 extended this tax deferral to shares issued before 2021.

Absent this deferral, a patronage dividend paid in shares would be taxable to the member in the year received. The cooperative paying the dividend would also be required to withhold an amount from the dividend and remit it to the Canada Revenue Agency on account of the recipient’s tax liability. Prior to the introduction of the deferral, a portion of the dividend was typically paid in cash in order to fund the member’s tax liability. This cash portion could represent a significant outlay of capital for the agricultural cooperative.

The tax deferral measure allows eligible members of eligible agricultural cooperatives to defer the inclusion in income of all or a portion of any patronage dividend received as an eligible share until the disposition (including a deemed disposition) of the share. Further, when an eligible agricultural cooperative issues an eligible share as a patronage dividend, there is no withholding obligation in respect of the patronage dividend. Instead, there is a withholding obligation when the share is redeemed. An eligible share must not, except in the case of death, disability or ceasing to be a member, be redeemable or retractable within five years of its issue.

The Government proposes to extend this measure to apply in respect of eligible shares issued before 2026.

Emergency Business Supports

The Government has introduced a number of support measures to help businesses and other organizations affected by the COVID-19 pandemic, including the Canada

Emergency Wage Subsidy, the Canada Emergency Rent Subsidy and the Lockdown Support.
Program details in respect of these three measures have been legislated through December 19, 2020 and the application of these measures can be extended by regulation until June 2021. Proposed program details from December 20, 2020 to March 13, 2021 for the three measures are described below.

Canada Emergency Wage Subsidy Extension

The Government introduced the Canada Emergency Wage Subsidy to prevent further job losses and encourage employers to quickly rehire workers previously laid off as a result of COVID‑19. The wage subsidy provides eligible employers that have experienced a decline in revenues with a wage subsidy for eligible remuneration paid to their employees.

Support for active employees

The wage subsidy for active employees includes a base subsidy for all employers that have experienced a decline in revenues, as well as a top-up wage subsidy available to employers most adversely impacted by the pandemic. The maximum combined base subsidy and top-up wage subsidy rate is set at 65 per cent for the current qualifying period, which ends on December 19, 2020.
The Government proposes to increase the maximum wage subsidy to 75 per cent for the eleventh to thirteenth qualifying periods, which run from December 20, 2020 to January 16, 2021, from January 17, 2021 to February 13, 2021 and from February 14, 2021 to March 13, 2021, respectively. The maximum base subsidy would remain at 40 per cent and the maximum top-up wage subsidy rate would increase to 35 per cent, as set out in Table 2.

Table 2
Canada Emergency Wage Subsidy Rate Structure, Periods 11 to 13
(December 20, 2020 to March 13, 2021)
Revenue decline Base subsidy Top-up wage subsidy
70% and over 40% 35%
50-69% 40% (Revenue decline - 50%) x 1.75
1-49% Revenue decline x 0.8 0%
Support for furloughed employees

A separate wage subsidy rate structure applies for furloughed employees. The wage subsidy for furloughed employees is aligned with the benefits provided through Employment Insurance (EI) through December 19, 2020 to ensure equitable treatment of such employees between both programs.
To ensure that the wage subsidy for furloughed employees remains aligned with benefits available under EI, the Government proposes that the weekly wage subsidy for a furloughed employee from December 20, 2020 to March 13, 2021 be the lesser of:

Employers will also continue to be entitled to claim under the wage subsidy their portion of contributions in respect of the Canada Pension Plan, EI, the Quebec Pension Plan and the Quebec Parental Insurance Plan in respect of furloughed employees.

Reference periods

For the purposes of the wage subsidy (and the rent subsidy, as discussed below), an employer’s decline in revenues is generally determined by comparing the change in the employer's monthly revenues, year-over-year. An employer may also elect to use an alternative approach, which compares the change in the employer's monthly revenues relative to the average of its January 2020 and February 2020 revenues. A deeming rule provides that an employer’s decline in revenues for any particular qualifying period is the greater of its decline in revenues for the particular qualifying period and the immediately preceding qualifying period.

Table 3 below outlines the proposed reference periods for determining an eligible employer’s decline in revenues from December 20, 2020 to March 13, 2021.

Table 3
Canada Emergency Wage Subsidy Reference Periods, Periods 11 to 13
(December 20, 2020 to March 13, 2021)
Timing Period 11
December 20, 2020 – January 16, 2021
Period 12
January 17, 2021 – February 13, 2021
Period 13
February 14, 2021 – March 13, 2021
General approach December 2020 over December 2019 or November 2020 over November 2019 January 2021 over January 2020 or December 2020 over December 2019 February 2021 over February 2020 or January 2021 over January 2020
Alternative approach December 2020 or November 2020 over average of January and February 2020 January 2021 or December 2020 over average of January and February 2020 February 2021 or January 2021 over average of January and February 2020

Employers that had chosen to use the general approach for prior periods would continue to use that approach. Similarly, employers that had chosen to use the alternative approach would continue to use the alternative approach.

All the other parameters of the program would remain unchanged. Details for the wage subsidy for any periods beyond March 13, 2021 will be proposed at a later date.

Canada Emergency Rent Subsidy Extension

The Government introduced the Canada Emergency Rent Subsidy to provide direct relief to organizations that continue to be economically impacted by the COVID‑19 pandemic. Under the rent subsidy, qualifying organizations that have experienced a decline in revenues are eligible for a subsidy on qualifying expenses.

Rate structure

The Government proposes to extend, until March 13, 2021, the current rate structure for the base rent subsidy (which applies until December 19, 2020), as shown in Table 4.

Table 4
Canada Emergency Rent Subsidy Rate Structure, Periods 11* to 13
(December 20, 2020 to March 13, 2021)
Revenue decline Base subsidy
70% and over 65%
50-69% 40% + (revenue decline - 50%) x 1.25
1-49% Revenue decline x 0.8
* Period 11 of the Canada Emergency Wage Subsidy is the fourth period of the Canada Emergency Rent Subsidy. Period identifiers have been aligned for simplicity.
Revenue decline calculation

Both the rent subsidy and the wage subsidy use the same calculation to determine an organization’s revenue decline. As a result, the same reference periods are used to calculate an organization’s decline in revenues for the wage subsidy and the rent subsidy. Likewise, if an entity elects to use an alternative method for computing its revenue decline under the wage subsidy, it must use that alternate method for the rent subsidy.

The Government also confirms its intention to proceed with the proposed change to the rent subsidy, details of which were announced on November 19, 2020, that would allow amounts to be considered to have been paid when they become due, provided certain conditions are met.

Details for the rent subsidy for any period beyond March 13, 2021 will be proposed at a later date.

Lockdown Support Extension

For locations that must cease operations or significantly limit their activities under a public health order issued under the laws of Canada, a province or territory, the Government introduced the Lockdown Support through the Canada Emergency Rent Subsidy program to provide additional help. In order to qualify for the Lockdown Support, an applicant must qualify for the base rent subsidy.

The Government proposes to extend, until March 13, 2021, the current 25-per-cent rate for the Lockdown Support. Details for the Lockdown Support for any period beyond March 13, 2021 will be proposed at a later date.

Sales Tax Measures

GST/HST Relief on Face Masks and Face Shields

In order to support public health during the COVID-19 pandemic, the Government proposes to temporarily relieve (i.e., zero rate) supplies of certain face masks and face shields from the Goods and Services Tax/Harmonized Sales Tax (GST/HST).

The zero-rating of the GST/HST would apply to face masks (medical and non-medical) and face shields designed for human use that meet certain specifications. The following face coverings would generally be eligible for this GST/HST relief:

This measure would apply to supplies of these items made after December 6, 2020, and is proposed to only be in effect until their use is no longer broadly recommended by public health officials for the COVID-19 pandemic.

Application of the GST/HST in Relation to E-commerce Supplies

The GST/HST is a broad-based consumption tax intended to apply to most goods and services consumed in Canada. Applying the tax to the consumption of most goods and services helps ensure that the GST/HST system is fair, efficient and simple.

The ongoing digitalization of the economy is opening up new ways for businesses to sell goods and traditional services (e.g., legal and accounting services) and has seen the development of new types of digital products, such as mobile apps, online video gaming, and video and music streaming services. The evolution of the commercial and retail landscape in Canada, and the ways in which Canadians shop, pose challenges to the effectiveness and fairness of the GST/HST system. In particular, certain aspects of the current GST/HST system are more reflective of the economy that was in place when the tax was introduced in 1991, when goods and services were almost exclusively purchased from stores and other vendors that were located in Canada.

Under the current GST/HST rules, persons that carry on business in Canada are generally required to register for the GST/HST and to collect and remit tax on their taxable supplies of goods and services in Canada. Non-resident persons that are not carrying on business in Canada are not required to register, collect or remit the GST/HST. In the case of goods and services supplied by such non-residents, the GST/HST generally applies in the following manner:

The current rules can often result in the GST/HST not being collected on online purchases from non-resident vendors or made through digital platforms, also known as online marketplaces. The non-collection of the GST/HST presents equity, economic and fiscal concerns. In particular, it places physical and online retailers operating in Canada that are required to register for and collect the GST/HST at a competitive disadvantage relative to non-resident vendors.
The Government proposes a number of changes to the GST/HST system to ensure that the GST/HST applies in a fair and effective manner to the growing digital economy.

GST/HST on Cross-Border Digital Products and Cross-Border Services

To improve the collection of the GST/HST and level the playing field between resident and non-resident vendors, the Government proposes that non-resident vendors supplying digital products or services (including traditional services) to consumers in Canada be required to register for the GST/HST and to collect and remit the tax to the CRA on their taxable supplies to Canadian consumers. In many instances, digital products or services may also be supplied to consumers in Canada through digital platforms that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). To ensure that the GST/HST applies equally to these supplies, it is also proposed that distribution platform operators be generally required to register for the GST/HST and to collect and remit the tax on the supplies that these platforms facilitate of digital products or services of non-resident vendors to Canadians.

To facilitate compliance with these requirements – and to be consistent with the Organisation for Economic Co-operation and Development’s recommendations on the digital economy and the actions taken by many other jurisdictions – a simplified GST/HST registration and remittance framework would be available to non-resident vendors and non-resident distribution platform operators that are not carrying on business in Canada (e.g., have no permanent establishment in Canada).

The proposed new simplified system would include the following key features. (Unless otherwise noted, the references hereinafter to non-resident vendors and non-resident distribution platform operators are to those that are not carrying on business in Canada and have not registered under the normal GST/HST rules.)

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of digital products and services from non-resident vendors and non-resident distribution platform operators, unless the purchase is for use exclusively in the business’s commercial activities.

To help protect the integrity of the proposed simplified GST/HST framework, a penalty would apply if a person provides a GST/HST registration number to a non-resident vendor or non-resident distribution platform operator to evade, or attempt to evade, tax on the purchase of digital products or services acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number and is nevertheless charged the GST/HST, the business would be able to request a refund from the non-resident vendor or non-resident distribution platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of cross-border digital products or services to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

GST/HST on Goods Supplied through Fulfillment Warehouses

Non-resident vendors are increasingly selling goods to Canadians through digital platforms, also known as online marketplaces, that facilitate sales of third-party vendors (hereinafter referred to as a “distribution platform”). These distribution platforms may also store the goods of third-party vendors in fulfillment warehouses in Canada and ship these goods to purchasers in Canada on a timely basis after the goods have been sold through the platforms.

While applicable duties and taxes are levied at the border on the value of the goods at the time of importation, the GST/HST is not consistently charged on the final price paid for the goods when they are subsequently sold to Canadians through distribution platforms and fulfillment warehouses located in Canada. This means that the difference between the value at the time of importation and the final price paid escapes the GST/HST. Although these goods are situated in Canada at the time of sale, there is generally no requirement under the current rules for the non-resident vendor, or distribution platform operator facilitating the sale, to collect or remit the GST/HST when the goods are sold to a purchaser in Canada. This is because the non-resident third-party vendor is generally not considered to be carrying on business in Canada and the distribution platform operator is not considered to be the supplier of the goods.

In contrast, vendors situated in Canada, including those selling goods through distribution platforms and fulfillment warehouses in Canada, are generally required to collect and remit the GST/HST on the final price paid for the goods when sold to a purchaser in Canada. This situation creates a competitive inequity for resident vendors and represents a gap in the rules resulting from the new commercial and retail landscape of the digital economy.

In order to level the playing field between resident and non-resident vendors, help ensure that the GST/HST is collected in an effective and efficient manner, and protect the integrity of the GST/HST base, the Government proposes to:

The following framework outlines how the GST/HST would apply under this proposal.

As a result, the GST/HST would apply to platform sales of goods located in Canada by both registered and non-registered third-party vendors, regardless of the residency of the platform operator or third-party vendor. This would help ensure a more equitable tax treatment of registered and non-registered vendors, as well as of resident and non-resident businesses.

Coming into Force

The proposed new rules would generally apply to supplies made on or after July 1, 2021 and supplies made before July 1, 2021 if all of the consideration is payable on or after July 1, 2021.

GST/HST on Platform-based Short-Term Accommodation

The GST/HST applies to supplies of short-term accommodation. For GST/HST purposes, short-term accommodation generally includes a residential complex or a residential unit that is rented to a person for a period of less than one month.

The short-term accommodation sector increasingly includes individual property owners renting out their residences or other residential property they own, or rooms within their residences or other residential property they own. These rentals are often made through digital platforms that list properties and facilitate the acceptance and processing of payments between the property owner and the customer. In many cases, these platforms act as the primary means of contact between the customer and the property owner. Under the current GST/HST rules, the property owner is generally considered to be making the supply of the short-term accommodation.

The increasing popularity of the use of digital platforms to supply short-term accommodation poses a number of challenges for GST/HST compliance and raises questions of fairness between different suppliers of short-term accommodation.

In order to ensure that the GST/HST applies consistently and effectively with respect to supplies of short-term accommodation in Canada facilitated by platforms, the Government proposes to apply the GST/HST on all supplies of short-term accommodation in Canada facilitated through a digital platform (hereinafter referred to as an “accommodation platform”). Under the proposal, the GST/HST would be required to be collected and remitted on short-term accommodations supplied in Canada through an accommodation platform by either the property owner or the accommodation platform operator as follows:  

The following framework outlines how the GST/HST would apply under this proposal.

General Framework

Simplified Requirements for Non-Resident Platforms

To facilitate compliance with these requirements, a simplified GST/HST registration and remittance framework would be available to non-resident accommodation platform operators that are not carrying on business in Canada.

The proposed new simplified system would include the following key features. (Unless otherwise noted, the references hereinafter to ‘non-resident accommodation platform operators’ are to those that are not carrying on business in Canada and have not registered under the normal GST/HST rules.)

Purchases by GST/HST Registered Businesses

A GST/HST registered business will continue to be required to self-assess and remit the GST/HST on its purchases of short-term accommodation facilitated by a non-resident accommodation platform operator that is registered under the simplified GST/HST registration/remittance system, unless the purchase is for use exclusively in the business’s commercial activities.

To help protect the integrity of the proposed simplified GST/HST framework, a penalty would apply if a person provides a GST/HST registration number to a non-resident accommodation platform operator to evade, or attempt to evade, tax on the purchase of short-term accommodation in Canada acquired for personal consumption.

Where a GST/HST registered business provides its GST/HST registration number to such a non-resident accommodation platform operator and is nevertheless charged the GST/HST on the supply of short-term accommodation, the business would be able to request a refund of the tax from the non-resident accommodation platform operator. Any GST/HST paid by the registered business in such cases would not be recoverable by claiming an input tax credit or by filing a tax paid in error claim.

Coming into Force

The proposed new rules would apply to supplies of short-term accommodation in Canada to the extent that the consideration for the supply becomes due on or after July 1, 2021, or is paid on or after that day without having become due.

Next Steps

Recognizing the Government’s commitment to ensuring that the Canadian tax system is effective and efficient, the Government is seeking stakeholders’ views and comments on the three above proposals.

The Government invites interested parties to submit comments on these proposals and the associated draft legislation set out below by February 1, 2021. Please send your comments to: fin.gsthst2020-tpstvh2020.fin@canada.ca.

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