Digital services in Canada will cost more than usual starting next month, as the Government of Canada is set to enact new legislation that will require companies to charge sales tax on digital goods.
The new legislation will take effect on Thursday, July 1 and impact several well-known companies including Airbnb, Disney+, Netflix, PlayStation, Spotify and others.
In the past, foreign-based companies without a physical presence in Canada were not required to charge sales tax on digital goods and services. As a result, digital products like Netflix subscriptions and PlayStation Store video games were tax-free to most Canadians, as both companies operated in the United States. This loophole did not apply to companies like Apple and Microsoft, who have physical business operations in Canada and therefore required to charge sales tax on digital purchases.
The new federal legislation was first proposed by the Liberal Party in 2019 and finalized in their 2020 Fall Economic Statement (Section 4.8). The initial proposal called for a launch timetable of 2022, but that was fast-tracked to 2021 due to the rise of digital sales during the COVID-19 pandemic.
According to the federal government, the new measures are designed to "level the playing field", as the loophole created an unfair advantage for foreign-based companies selling digital goods in Canada. The Department of Finance estimates that the new legislation will generate an extra $1.2 billion in revenue over the next five years starting in 2021-22.
The changes will affect nearly every Canadian province and territory, with the exception of Quebec and Saskatchewan, as those provinces had existing laws that required companies to charge provincial sales tax regardless of their operating location.
Sales tax will vary depending on the GST/HST rate in your province and we've listed the federal tax rates for all 13 Canadian provinces and territories below (figures do not include provincial tax rates, where effective).
- 5% GST – Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan and Yukon
- 13% HST – Ontario
- 15% HST – New Brunswick, Newfoundland and Labrador, Nova Scotia and Prince Edward Island