Read e-books? Watch Netflix? You're probably a tax cheat
Little-known law requires consumers to pay GST/HST for cross-border online products
Look closely — there's something missing from the bills you got this month.
No, not your phone bill, not your rent or mortgage, utilities or gym membership.
But what about that e-book from Amazon? Or your monthly payment to Netflix? What six letters are missing from the bill for your World of Warcraft account?
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The answer, of course, is GST and HST.
Companies that operate outside Canada don't charge either tax on their products, and if those products happen to arrive via the internet, there's really no way for authorities to apply an equivalent fee at the border.
I've never heard of anyone who's complied— Geoff Loomer , Dalhousie University
So, e-shoppers end up saving between five and 15 per cent, right?
Not so fast. In fact, Ottawa expects Canadians to pay the GST/HST for any applicable good or service — no matter where it came from, how it arrived, or if the vendor can even find Canada on a map.
"Generally, the Canadian customers in these circumstances are required under the legislation to self-assess and remit the GST/HST on these supplies," the Canada Revenue Agency said in an email to CBC News.
But very few people know this, according to Geoff Loomer, a tax and legal expert with Dalhousie University in Halifax. He says it's one of those "ignorance-is-bliss" situations.
"People may think they don't have to pay the GST but that's incorrect," he says.
"It's not that people are necessarily evading it. It's just that no one knows."
'Virtually zero' compliance
The situation stems from tax laws that were laid down in 1989, two years before the GST was first charged, and when significant e-commerce was still years away. Under the Excise Tax Act, companies that do business in Canada are expected to register with the government and charge the appropriate taxes.
But an outfit like Netflix — which has no stores, employees or other assets north of the border — can duck that requirement.
The same goes for iTunes (but not the Apple Store), other media outlets, online games and networks, and e-books from Amazon.com, which come straight from the U.S. company and not its Canadian spinoff.
That puts the onus on the consumer. But does anyone actually pay up?
In fact, CRA says 490 returns on "imported taxable supplies" were filed in 2015, bringing in $3.1 million — though the majority of those returns were filed by corporations and include transactions for non-digital products such as, for example, the services of an overseas lawyer.
Among individuals, Loomer says, seemingly no one obeys the law. It's difficult to enforce, and any revenue the government would stand to regain has, historically, been minimal.
Compliance is "virtually zero … I've never heard of anyone who's complied," he says.
But consider the numbers. Netflix alone has some three million subscribers in Canada, each paying $7.99 per month.
That adds up to $287.6 million per year. Levying the federal five per cent portion of the GST/HST on those subscribers would net $14.3 million, plus an additional eight to 10 per cent for those provinces that apply additional tax.
That's not a lot of money on a governmental scale, but it would pay a few bills.
And with e-commerce still growing — retail e-sales will hit almost $30 billion in Canada this year, according one estimate — pressure is mounting to bring sales of online "intangibles" into compliance.
"It doesn't make a lot of sense from a tax policy point of view that we've done nothing about this," Loomer says. "There's no good reason for it."
Closing the gap?
Ottawa has floated the idea, most recently in the 2014 federal budget, which had a line about ensuring "effective collection of sales tax on e-commerce sales … by foreign-based vendors."
That led to a round of public consultations, during which the government heard from Canadian companies including Rogers Communications, which complained its streaming TV service Shomi, which charges tax on its $8.99 monthly fee, is at an unfair disadvantage against Netflix.
Finance Canada says that feedback informed Canada's participation in a recent project at the Organization for Economic Co-Operation and Development aimed at addressing the "tax challenges of the digital economy."
The government is reviewing that project's final report, according to a Finance Canada spokesman.
Other countries have already introduced a so-called "Netflix tax." Japan's eight per cent levy on "electronic services by offshore providers" took effect on Oct. 1, following similar moves and proposals in Australia, New Zealand, Norway and the European Union.
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But it remains to be seen if those laws will be effective. If a company has no presence in the country, there are few ways a government can twist its arm.
Loomer notes that a new or newly enforced tax in Canada would probably require some help from the U.S. — the home territory of the biggest e-services — to enforce.
In the meantime, the CRA asks anyone who pays for Netflix, e-books, iTunes, the PlayStation Network, Spotify, World of Warcraft or any other online intangibles to please fill out this form. And send a cheque.