Submitted by Jonathan Spencer, Thorsteinssons LLP...
New GST rules announced in the federal budget remove GST from subscription-based web services sold to non-residents who are not registered for GST. Proving you are dealing with a non-resident has been a problem.
The Canada Revenue Agency (“CRA”) has just released a bulletin (GI-034) outlining their assessing policy. The CRA will generally accept an online self-declaration by customers that they are not registered for GST. The CRA will also generally accept an on-line self-declaration by customers that they are not residents of Canada, along with their complete home address as proof of residency, provided it is supported by a comparison of the customer’s declared home address with the billing address, or a comparison of the customer’s home address with the location of the bank that issued the credit card used to pay for the purchase.
The CRA will also allow suppliers to use geo-location software to verify whether the declared home address is correct. This is a useful tool, but not without its problems. The ITAA (Information Technology Association of America) published a report in 2002 outlining the problems with geo-location software as a tax compliance tool. While some vendors claim to pinpoint customers to within 50 miles, dynamic IP addressing means the software must be constantly updated to be accurate. Problems with wireless access and POP (point of presence) call-in numbers mean users can be miles from their actual location. As a result, geo-location software is not a panacea and must be relied on with caution for Canadian GST compliance.
Ultimately, the most serious issue will be archiving the residency of the site’s customers. The CRA can assess up to four years back, or more if they suspect fraud or negligence, so retaining data in a secure manner that support the residence of customers for tax purposes will be a key aspect of Canadian website operations.
© Jonathan Spencer, Thorsteinssons LLP
jdspencer@thor.ca
AIMS member since: 2003