QUEBEC'S NEW TAX INITIATIVES TARGETTING E-COMMERCE TRANSACTIONS
In its budget tabled in March 2018, the Quebec provincial government announced new initiatives to target non-Quebec vendors such that goods and services rendered to Quebec residents will be subject to the Quebec Sales Tax (“QST”). The enabling legislation was enacted in June 2018, and the provisions came into effect on January 1, 2019 for non-Canadian suppliers; and September 1, 2019 for Canadian suppliers based outside Quebec.
Quebec developed these rules to align with the growth of the digital economy, whereby more transactions are conducted online than through physical “bricks and mortar” establishments. The new rules are based on the principles promulgated by the Organization for Economic Co-operation and Development in its “Base Erosion and Profit Shifting” initiative.
Non-Canadian suppliers and Canadian suppliers outside Quebec will now be required to collect and remit QST at 9.975% on their sales to a “specified Quebec customer” (as defined below).
Specified Registration System
In its attempt to target e-commerce transactions such that QST will be collected, Quebec developed a new system, the “specified registration system” for non-Quebec-based businesses. This system is distinct from and is a supplement to and not a replacement for, the existing QST regime (i.e. – “general registration system”).
Under the specified registration system, non-Quebec-based businesses with sales to Quebec customers in excess of a threshold of $30,000 will be required to charge QST. The $30,000 threshold is based on a rolling 12-month calculation, and as a result, businesses will have to start collecting QST in the month that exceeds the threshold.
What is also unique about the specified registration systems is that it applies only to sales to a “specified Quebec customer”, which is defined to be “a taxpayer who is resident in Quebec and who is NOT a QST registrant”. In effect, it could be argued that the “specified registration system” is targeting sales to individual consumers who reside in Quebec, as larger firms and organizations are likely already registered for QST under the existing QST regime.
Under the specified registration system, the following will now be required:
Canadian suppliers outside Quebec will be required to collect QST on sales of corporeal movable property (roughly equivalent to tangible personal property) to specified Quebec customers;
Non-Canadian suppliers and Canadian suppliers outside Quebec will be required to collect QST on sales of incorporeal movable property (roughly equivalent to intangible personal property) and services to specified Quebec customers; and
Digital platforms will be required to collect QST on sales of incorporeal movable property and services under either the specified registration system or the general registration system.
Note: As laws in Quebec are based on its Civil Code, the approximate common law equivalents have been noted above. These should not be construed as providing legal advice.
Interaction with General System
Non-Quebec suppliers (both non-Canadian suppliers and Canadian suppliers outside Quebec) who are registered only under the specified registration system will not be able to claim input tax refunds (similar to input tax credits for GST/HST purposes) on QST that were paid on any Quebec-sourced supplies of goods and services as they will not be considered registrants under the general registration system.
Similarly, taxpayers registered under the general registration system who have been charged QST will not be able to claim an input tax refund through their regular QST filings. Instead, such taxpayers will have to contact the non-Quebec supplier in order to obtain a refund. The onus will now be on the non-Quebec suppliers to determine which of their customers are based in Quebec and whether they are registered for purposes of the QST.
Enforcement and Penalties
Non-Quebec suppliers registered under the specified registration system will be required to collect information to confirm the residency, identity, and status (whether registered for QST or not) of their customers in Quebec. Fines will be levied by the Quebec government on specified Quebec customers who avoid paying the QST.
Guidance from Revenu Quebec
Businesses based outside Quebec may refer to the following website, which provides some guidance from the Quebec government on how these rules may apply.
Need Help Navigating the Rules?
A Trowbridge professional can assist in providing an assessment of your operations. Contact us at (416) 214-7833.