Earlier this year, Jonathan Spencer from Thorsteinssons LLP sent in a post about a GST issue for Canadian websites. The issue is mostly resolved, Jonathan sends in the following update...
The federal budget released on March 19, 2007 contains important GST relief for Canadian-based websites. However, some questions remain around Internet access.
Canadian websites faced significant uncertainty because of a court decision which required websites to collect GST on charges to non-residents to access content. The Canada Revenue Agency (CRA) had also taken the view that the rule designed to remove GST from intellectual property provided to non-residents should be read narrowly. Many websites have not collected GST on sales or charges to non-residents leaving them exposed to assessment for GST plus significant penalties and interest for the past four years.
In response to concerns raised by the industry, last night’s budget includes a proposal which removes GST from a broader class of intellectual property. The rule is retroactive to the beginning of GST which means that Canadian websites which have not collected GST to date can breathe easier.
However, there are some important restrictions. Canadian websites must be able to ensure that, where access rights are purchased by a non-resident individual, that individual is outside Canada at the time. This means that websites must be able to track the location of the individual user when they buy access, and must retain those records for four years in the event of audit. GST will also apply if the rights relate to property in Canada, or to a service which itself is subject to GST.
It is not entirely clear whether providing non-residents with access to the Internet is taxable. The CRA regards Internet access as a “telecommunication facility”. The budget proposals do not apply to certain “telecommunications facilities” but it is likely that the intent is to apply tax to certain mobile telephone services. The uncertainty needs to be clarified.
© Jonathan Spencer, Thorsteinssons LLP, Toronto
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