Tax & Accounting August 21, 2018

Update on Quebec's "Netflix Tax" measures

Many will recall that the latest Québec Budget included proposals relating to the enactment of new registration measures to entice businesses, otherwise not required to register for, or collect and remit the QST, to register under a mandatory simplified scheme wherein they would collect the QST with respect to sales to Québec consumers but not be entitled to input tax refunds (“ITRs”).  These proposals apply to organizations  with no physical presence in Québec such as Amazon, Netflix, Spotify, and Apple Music to the extent that they supply services or intangible property to Québec consumers as of January 1, 2019.

In addition, the new simplified registration measures modeled after the OECD recommendations to resolve similar situations, also apply to Canadian suppliers with no presence in Québec (also otherwise not required to register) with respects to supplies of goods to non-registered consumers in Québec. In this case the new measures were announced as being effective September 1, 2019.   For more detailed information please refer to the April edition of the Canadian GST/HST Monitor.

These measures are included in Québec’s Bill 150, An Act to improve the performance of the Société de l’assurance automobile du Québec, to better regulate the digital economy as regards e-commerce, remunerated passenger transportation and tourist accommodation and to amend various legislative provisions.  Bill 150 was introduced on October 31, 2017, and received Royal Assent June 12, 2018.

Interestingly, as reported by an article published in the Journal de Montréal, Québec’s Finance Minister, while discussing the topic with Paul Arcand the host of the daily morning talk-show on Montréal’s FM 98,5, stated that, in view of Revenue-Québec’s responsibility for the administration of the GST in Québec, believed that this meant that out-of-province suppliers registering for QST purposes, under the new rules enacted by Bill 150, would also be required to collect and remit the GST in addition to the QST. Evidently, this is not clear, as Bill 150 only makes reference to the QST and is silent on the GST. When further probed by Mr. Arcand on the federal position, the article quotes the Finance Minister as stating: “I don’t know”.

The Finance Minister’s statement, as reported by the Journal de Montréal, appears in total contradiction with the oft-stated position that the Federal Government will not impose a “Netflix tax”. Prime Minister Trudeau’s statements to this effect are somewhat disingenuous since the Excise Tax Act (in other words the GST/HST) already clearly applies to services provided by out-of-Canada suppliers such as Netflix and others, the issue being whether or not suppliers such as Netflix must register and collect the tax and whether they can be forced to do so. It should be remembered that, in the alternative, Canadian consumers of such services are technically required to self-assess and remit the tax. Naturally, few are aware of this and fewer actually comply. The Prime Minister’s stated wish “not to apply a Netflix tax” simply confuses the matter even more. Québec’s position is based on the 2013 Federal-Provincial agreement confirming that the GST administration is the responsibility of Québec, and not of the Canada Revenue Agency, with respect to application of the Excise Tax Act in Québec.

Notwithstanding Québec’s Finance Minister’s statement, it would seem that some amendments to the Excise Tax Act would be necessary for Québec new rules to apply to the GST as well as the QST. Indeed, an important aspect of the new rules being  that in exchange for the simplified tax remittances provisions, the supplier may not claim ITRs under the QST. For the same to apply to GST (i.e., no “ITCs”), amendments to the Excise Tax Act would be needed.

The Journal de Montréal adds that a representative from the Federal Department of Finance stated that this amounts to an “unusual situation” which civil servants from Ottawa and Québec City are attempting to resolve.  It will be interesting to see what comes out of this. It is also worth asking whether forcing businesses that voluntarily register under the new scheme would be less likely to do so, if required to collect and remit the GST in addition to the QST. Who knows, this may also provide an excuse for the Federal government to also apply the OECD recommendations and apply the GST across the country in the same spirit as the new Québec law?

Once more, it will be interesting to keep track of this and see how it turns out.
Jacques Roberge
Independent Consultant
Jacques Roberge, B.A.A., has more than 30 years of experience in commodity tax. He initially worked for Revenue Canada, and was later employed by three of the Big Four accounting firms to develop commodity tax consulting services.
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