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Written by Echo Lee, CPA, MTax, MTI, from Segal GCSE LLP. This document was written for our quarterly bulletin, Canadian Overview, published by Canadian member-firms of Moore North America.
The recent Quebec Budget introduced significant revisions to the QST legislation to apply to the taxation of the digital economy and e-commerce in Quebec.
More specifically, effective January 1, 2019, non-residents of Canada will be required to register for QST and charge QST to specified Quebec consumers on sales of digital services and incorporeal moveable property. This change will likely require non-resident media companies such as Netflix and iTunes to register for QST and charge QST to many Quebec consumers on subscriptions and other fees.
Further, effective September 1, 2019, residents of Canada but non-residents of Quebec will be required to register for QST and charge QST to specified Quebec consumers on sales of corporeal moveable property (such as goods), as well as sales of digital services and incorporeal moveable property. As a result, a resident of Canada that is not resident in Quebec that sells goods to Quebec specified consumers through a website (or other means) may now be required to register for QST. Pursuant to the current rules however, QST registration (and thus the collection of QST) may not have been required for such sales of goods by a non-resident of Quebec on the basis that the non-resident did not have a significant presence in Quebec.
The term “Quebec specified consumers” refers to a person who is not registered for QST purposes and whose usual place of residence is in Quebec. Accordingly, suppliers that are only making sales to persons that are registered for QST purposes will not be required to register pursuant to the new rules.
Registration under the new rules will be pursuant to a different chapter of the QST legislation, with the result that any person registered pursuant to the new rules will not be entitled to claim any input tax refunds in respect to any QST paid in the course of their commercial activities. Accordingly, any persons required to register pursuant to the new rules may wish to consider voluntarily registering pursuant to the ‘old rules’ to thus allow ITRs to be claimed. However, registration and filing QST returns pursuant to the new rules will be streamlined and simplified.
In addition to the above changes, digital platforms will also be required to be registered for QST where the platform provide services to a non-resident supplier that enables the platform to make supplies of incorporeal movable property or services to specified Quebec consumers where the platform controls the key elements of transactions (such as billing, terms and conditions, and delivery). This will result in certain conduits or other parties that are not necessarily the vendor of the property or services being required to charge and collect QST on certain transactions.
Registration pursuant to the new rules will not be required where the total taxable supplies made to consumers are less than $30,000 in the 12 previous months. Further, all QST returns filed by registrants pursuant to the new rules are required to be filed quarterly. Lastly, the new rules provide that QST may be paid in certain currencies, including USD and Euro, provided the registrant is paid in that currency.
Vern Vipul, LL.B., M.Tax
Senior Associate, Commodity Tax
Segal GCSE LLP
This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.
The rise of e-Commerce created QST collection difficulties for suppliers with no physical or significant presence in Quebec. This situation negatively affected Québec’s supplier competitiveness, and it’s shorting the provincial government necessary revenue. The policy response to this was the Mandatory Registration System (MRS).
About the MRS
In its 2018-2019 budget, the Quebec government introduced the MRS (also known as the “specified registration system”) for non-resident suppliers. The rules require non-resident suppliers to collect and remit the QST on taxable incorporeal movable property and services supplied in Québec to people who live in Québec but who are not registered for the QST. Moreover, Canadian suppliers will be required to collect and remit QST on corporeal movable property supplied in Québec to a Quebec consumer.
To establish residency and location, non-resident suppliers can refer to a customer’s billing address, IP address or banking information. And customers who falsify this information could face stiff penalties.
MRS and eCommerce
Digital property and services distribution platforms (“digital platforms”) are now required to register under the MRS in cases where the digital platform controls the key elements of transactions with specified Québec consumers (billing, transaction terms & conditions and delivery).
Mandatory registration will apply to non-resident suppliers (NRS) when the value of taxable goods and services exchanged in Québec exceeds $30,000 a year. As NRSs registered under the new MRS are not subject to other QST provisions, claiming an input tax reimbursement is not possible. However, an NRS can register under the general QST if it meets registration requirements.
The Québec government’s goal is the make the MRS simple and easy to use. The return must be filed electronically on a quarterly basis and the remittance can be paid in USD and EURO.
The MRS comes into effect on January 1, 2019, for non-resident suppliers outside Canada, and September 1, 2019, for non-resident suppliers located in Canada.
For more information about the MRS, what it means for your business and how it may or may not affect how you do business, book a consult with us and we’ll get you prepared for continued success in Québec.
Contributed by Benoit Vallée from Demers Beaulne. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.
This article is from the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America. These articles are meant to pursue our mission of being the best partner in your success by keeping you aware of the latest business news.
On June 19, 2018, the Senate passed Bill C-45, the Cannabis Act, which legalizes the consumption of recreational cannabis across Canada. The Act comes into force on October 17, 2018.
Consumption of cannabis will continue to be forbidden in public places, workplaces and vehicles, with some possible exemptions for people who consume marijuana medicinally.
So what does this mean for employers?
Impairment in the workplace is still unacceptable
While employers have a legal duty to accommodate medical cannabis, there is no such obligation with respect to recreational cannabis. It should be treated in the same manner as alcohol or other drug-related use or impairment in the workplace.
Accommodating medical cannabis is still recommended
Employers have a responsibility to take every reasonable precaution in the interests of employee safety. This includes accommodating an employee’s disability to the point of undue hardship. However, employers can (and should) ask for supporting medical documentation addressing medical cannabis use during work hours, including but not limited to a copy of the licensing documentation.
However, a cannabis prescription does not give workers the right to compromise their safety or the safety of others. If the essential duties of a position are safety-sensitive, no amount of impairment is tolerable. If the essential duties of an employee’s position are not safety-sensitive, some degree of impairment may be acceptable. Employers will need to prove tangible safety risks to refuse accommodation.
Also, employers are not obligated to let employees smoke cannabis in their workplace’s designated smoking area. If an employee needs to smoke prescribed marijuana during the workday, a place and time should be established to not expose other employees to cannabis smoke.
Finally, dependence on recreational marijuana may be a disability. Employers should encourage their staff to report any cannabis addictions they may develop so that they can be accommodated in compliance with the Human Rights Act.
Drug and Alcohol Policy – The Next Steps
Employers are encouraged to be proactive by reviewing and updating their policies and procedures regarding cannabis use. If intoxication in your workplace poses a risk to safety, you likely already have a policy in place to forbid consumption of any substance that causes impairment at work.
Remember that testing for substances is acceptable only in limited circumstances. Any related policy should be reviewed by a lawyer, as should any cannabis-related termination to ensure human rights requirements are met.
Contributed by Chantal Roy from Marcil Lavallée. This piece was produced as a part of the quarterly Canadian Overview, a newsletter produced by the Canadian member firms of Moore Stephens North America.
By Howard Wasserman, Principal—Taxation at Segal GCSE LLP
Any non-resident that has sales in Canada is taxable in Canada on the profit on those sales.
A number of treaties state that a non-resident corporation is only taxable in Canada if the non-resident corporation has a permanent establishment in Canada: a fixed place of business through which the business of a resident of one country is carried on.
In the Canada-US tax treaty, a permanent establishment is defined to be a place of management, a branch, an office, a factory or a workshop. Building sites or installation projects are also considered permanent establishments if they last more than 12 months. So too are people in Canada habitually exercising the authority to conclude contracts in the name of the non-resident.
And what’s not a permanent establishment?
1. The use of facilities for storage display or delivery of goods.
2. The maintenance of a stock of goods.
3. The purchase of goods or merchandise or the collection of information.
4. Advertising.
5. The use of a broker commission agent or any other independent agent.
Once a permanent establishment has been created, the non-resident is taxable only on the profits earned in Canada, not the revenues. This can be calculated using foreign expenses that relate to the activity in Canada. For example, a non-resident corporation could allocate some management or administration costs if they can be clearly tied to the activities in Canada.
Additionally, the non-resident corporation must meet Canadian filing requirements even if no taxes are payable. More specifically, the foreign corporation should file schedule 91 and schedule 97 that would be attached to the jacket of a T2 corporate tax return. In this filing, the non-resident corporation is stating that the corporation earns Canadian revenue but is not taxable in Canada because there is no permanent establishment.
All payments to the non-resident corporation doing business in Canada are subject to 15% withholding tax on the work done in Canada. If it has been determined that the non-resident corporation is not taxable in Canada, then the non-resident corporation can file the treaty-based tax return and request a refund of the withholding taxes.
There is an opportunity to request a waiver for the 15% withholding tax on work done in Canada before the work commences. In order to get a waiver, a submission must be made to CRA, which often includes the contract related to the work being done in Canada. This gives CRA an opportunity to examine the situation to determine if the foreign corporation is taxable in Canada.
If the non-resident corporation receives a waiver, the corporation can give this waiver to its customers to ensure the no withholding tax is payable. Even if a waiver is received, the non-resident corporation must still file a treaty-based Canadian income tax return because of the Canadian revenues earned.
There are a number of issues to be dealt with on carrying on business in Canada, but the first one is always the determination of whether the company owes Canadian corporate income taxes. For help or advice, you can contact me directly.
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