The world of e-commerce is quickly changing the consumer landscape and regulators are trying to keep pace. In our September Kurve, we reported the recent changes to sales tax in the U.S. affecting online retailers. Amidst speculation that the Canadian government may review its own rules regarding sales tax for online retailers, the Québec government has taken the lead with the implementation of new Québec Sales Tax (QST) registration rules, effective January 1, 2019, for non-resident businesses that sell into Québec.
Recognizing the significant advent of online transactions and the disadvantage this can put on Québec businesses in relation to non-Québec businesses, the Québec government introduced a new QST regime applicable to non-resident Québec businesses. In the past, businesses that were not resident in Québec were only required to register for QST if they had a permanent establishment or were carrying on business in Québec. The new rules look past the criteria of a permanent establishment or carrying on of a business in Québec, and instead require QST registration under a new regime where a non-resident business provides a threshold of specified taxable supplies in Québec to consumers.
As a result, suppliers outside Québec, as well as operators of digital platforms for the distribution of intangible property and services, need to determine whether they are required to register under the new regime. If required, they must register for the QST using the new registration service reserved for suppliers outside of Québec, collect the QST on certain taxable supplies made in Québec to consumers, and report and remit the QST collected.
Who is Affected by the New Regime and When?
The new rules apply to three types of non-resident suppliers: Foreign suppliers (suppliers outside Canada), Canadian suppliers (suppliers outside Québec) and operators of certain digital platforms. The type of non-resident supplier also determines the type of supplies affected as well as the implementation date for the new rules.
1. Foreign Suppliers – Suppliers Located Outside of Canada
A supplier located outside of Canada who makes specified taxable supplies in Québec to consumers may be required to register for the QST under the new system if it:
- does not carry on a business in Québec and does not have a permanent establishment in Québec;
- has not registered for QST purposes under the regular QST system; and
- is not registered for GST/HST purposes.
Specified taxable supplies applicable to this type of supplier are:
- incorporeal moveable property – hereafter referred to as ‘intangible property’ (examples: patents, copyrights, trademarks, antivirus software download, e-newspaper subscription download)
- services
The new rules for these suppliers are effective January 1, 2019.
Note: Foreign suppliers who meet all the criteria above except that they are registered for GST/HST are considered to be ‘Canadian suppliers’ for purposes of the new QST regime and thus are subject to the rules for Canadian suppliers described below.
2. Canadian Suppliers – Suppliers Located in Canada but Outside of Québec
A supplier located in Canada but outside of Québec who makes specified taxable supplies in Quebec to consumers may be required to register for the QST under the new system if it:
- does not carry on a business in Quebec and does not have a permanent establishment in Quebec;
- has not registered for QST purposes under the regular QST system; and
- is registered for GST/HST purposes.
Specified taxable supplies applicable to this these suppliers are:
- intangible property
- services
- corporeal moveable property – hereafter referred to as ‘goods’
The new rules for these suppliers are effective September 1, 2019.
3. Operators of Digital Platforms for the Distribution of Property and Services
An operator of a digital platform for the distribution of property or services who enables suppliers outside Québec who have not registered for the QST under the regular QST system to make specified taxable supplies in Québec to consumers, may be required to register for the QST using the new system if it:
- has not registered for the QST under the regular system; and
- controls the essential elements of the transactions between the suppliers and consumers, such as billing, delivery, and the terms and conditions of the transactions.
Specified taxable supplies for these suppliers are:
- intangible property
- services
The new rules for these suppliers are effective January 1, 2019.
Who Needs to Register under the New QST System?
Non-resident suppliers meeting any of the definitions above must register for QST purposes under the new regime if the total value of applicable specified taxable supplies (other than supplies made through a digital platform operated by another person) made in Québec to consumers over the 12-month period preceding a particular calendar month is greater than $30,000.
If, on January 1, 2019 (or September 1, 2019, as applicable), the total value of these specified taxable supplies is $30,000 or less, there is no requirement to be a QST registrant on that date. However, the total value on the first of every month thereafter must be recalculated to determine whether it is more than $30,000. If it is, registration for the QST under the new system is required (available online through the Revenu Québec website).
How Does QST Collection Work?
Once a non-resident supplier has registered for QST under the new system, it is required to collect the tax at the rate of 9.975% when it makes certain taxable supplies (other than zero rated supplies) of property or services in Québec to specified Québec consumers (SQC).
In addition, an operator of a digital platform is required to collect the QST in respect of certain taxable supplies (other than zero-rated supplies) of intangible property or services made in Québec to specified Québec consumers through its digital platform by:
- suppliers outside Québec who have not registered for the QST under the new system and who have not registered for QST under the regular system;
- suppliers outside Québec who have registered for the QST under the new system.
However, an operator of a digital platform is not required to collect the QST in respect of the taxable supplies of intangible property or services made in Québec to specified Québec consumers through its digital platform by suppliers outside Québec who have registered for the QST under the regular system.
What is a Specified Quebec Consumer?
An SQC is a person whose usual place of residence is in Québec and who is not registered for QST. A person’s usual place of residence is situated in Québec if any two of the following pieces of information support that conclusion:
- the person’s billing address;
- the person’s home or business address;
- the IP address of the device used by the person at the time of the transaction (or some other geolocation information);
- the person’s banking information;
- the information from a subscriber identity module (SIM) card used by the person;
- the address associated with the person’s landline telephone service;
- any other relevant information.
In order for a non-resident supplier to determine whether its customer is a SQC, this additional customer information will need to be obtained in the normal course of business.
When are QST Reporting and Remittance Due?
Once a non-resident supplier has registered for QST under the new system, it must follow the rules below in reporting the QST collected during each of reporting periods. Reporting period corresponds to a calendar quarter. The filing deadline is the last day of the month following the calendar quarter that corresponds to the reporting period. The first reporting period begins on the QST registration date and ends on the last day of that quarter. QST return must be filed using Revenu Québec’s online services and payment can be made in Canadian dollars, US dollars, or Euros.
The new system is only a QST collection system on sales made to consumers in Québec. Therefore, unlike the regular QST system, registrants under this new system are not entitled to recover any QST that they may pay on business purchases in Québec.
| Reporting period (if registered for the QST using the registration service reserved for suppliers outside Québec) |
Deadline for filing QST return |
|---|---|
| January 1 to March 31 | April 30 |
| April 1 to June 30 | July 31 |
| July 1 to September 30 | October 31 |
| October 1 to December 31 | January 31 |
What Next?
If you believe you might be affected by this new QST regime, you should take steps immediately to ensure you are compliant. Your systems and processes may need to be adjusted to identify registration requirements, track transactions to consumers in Québec, identify SQCs, and potentially charge, collect, remit and report QST.
For assistance or more information, contact us. We are here to help.
This newsletter has been written in general terms to provide broad guidance only. It should not be relied upon to cover specific situations and you should not act upon the information contained herein without obtaining specific professional advice. Please contact our office to discuss this information in the context of your specific circumstances. We accept no responsibility for any loss or damage resulting from your reliance on the information in this newsletter.