Ottawa's new tax measures to force Big Tech to begin charging sales tax
Canada’s federal government is planning to force foreign-based technology firms such as Netflix Inc. and Airbnb Inc. to charge their users a sales tax in a move aimed at boosting the government's coffers by as much as $6.5 billion over the next five years.
The new taxation plans, outlined in the government's Fall Economic Statement, attempt to level the playing field between Canadian companies and foreign-based digital corporations that were largely exempt from paying federal sales taxes. Some provinces -- such as Saskatchewan, British Columbia, and Quebec -- introduced taxes on streaming services like Netflix earlier this year.
The government announced Monday that any foreign-based company selling digital products or services to consumers in Canada will be required to collect and remit the Goods and Services Tax or Harmonized Sales Tax. The new tax changes are proposed to begin on July 1, 2021.
"Canadians want a tax system that is fair, where everyone pays their fair share, so the government has the resources it needs to invest in people and keep our economy strong. That is why we are moving ahead with implementing GST/HST on multinational digital giants and limiting stock option deductions in the largest companies," said Finance Minister Chrystia Freeland, in prepared remarks.
"And Canada will act unilaterally, if necessary … to apply a tax on large multinational digital corporations, so they pay their fair share just like any other company operating in Canada."
Those taxes will include any sales on products or services made through digital marketplace platforms, sales to Canadians of goods that are located in Canadian fulfillment warehouses, as well as any companies whose platforms help to facilitate short-term rental accommodations in Canada.
However, the new taxation moves wouldn't see streaming services such as Netflix, Amazon.com Inc.'s Prime Video, Walt Disney Co.'s Disney+, and Spotify Technology SA meet certain Canadian-content requirements, something the Canadian Radio-television and Telecommunications Commission recommended be adopted rather than introduce new tax measures in a wide-ranging report released earlier this year.
The CRTC estimates that those streaming services record annual revenue of roughly $5 billion, according to its most recent financial data. The federal broadcast regulator said in January that Ottawa should require foreign streaming services to invest in local programming rather than "digital taxes" that would likely get passed down to consumers.
"It is more appropriate to establish a regime that requires such online streaming services that benefit from operating in Canada to invest in Canadian programming that they believe will attract and appeal to Canadians," the report said.
Ottawa will also consider new corporate-level taxes for foreign-owned digital corporations and is working with the Organisation for Economic Co-operation and Development to develop a framework it expects to provide further details on in the next budget. It expects the new measure will result in $3.4 billion in new tax revenue over the next five years once it is introduced sometime in 2022.
In addition to the new taxes imposed on digital services, Canada will also limit the amount of employee stock option grants that can qualify for tax deductions to $200,000. That limit will not be subjected to Canadian-controlled private corporations such as start-ups.