Canadian Taxation of Non-Resident E-Commerce Providers

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The Canadian market has been increasingly targeted by non-resident e-commerce providers, whether located in the U.S. or other developed countries, or offshore in low-tax jurisdictions. This paper considers potential liability in respect to both income tax and tax on goods and services that can arise for such non-residents when conducting e-commerce in Canada. E-commerce has presented significant challenges to traditional approaches to the characterization of payments for tax purposes. In recent guidance, the Canada Revenue Agency for the first time explicitly adopted policy on the characterization of e-commerce transactions that was developed nearly ten years earlier under the auspices of the OECD. Drawing on this and related guidance, as well as additional recent case law, the author examines the rules applicable to Canada’s taxation of non-resident e-commerce providers under Parts I, XIII and XIV of the Income Tax Act. Similarly, he considers the characterization of e-commerce transactions for purposes of GST under Part IX of the Excise Tax Act, as well as the circumstances in which that act may impose registration and compliance requirements on non-residents conducting e-commerce in Canada. While clarity in such matters has significantly increased due to the willingness of the Canada Revenue Agency and Canadian courts to rely on OECD policy groundwork, the paper also demonstrates that in some situations it will still be prudent for the non-resident e-commerce provider to advert not only to tax advice, but advance rulings from the Canada Revenue Agency in order to achieve desired levels of certainty.

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