Quebec expanded its sales tax registration requirements last year to require sellers that are not resident in the Province to register and collect Quebec’s sales tax if their sales made to Quebec consumers in the last year were CAD $30,000 or more. The rules, which became effective for most non-residents of Canada on January 1st, 2019, become effective for Canadian and non-resident businesses registered for GST/HST on September 1, 2019. Quebec has announced that it will adopt a practical approach to compliance by non-resident suppliers along with some leniency with respect to penalties for suppliers attempting to comply. However, it also amended its legislation earlier this year to enable the Minister to register non-compliant suppliers on a prospective basis.
The new registration requirements, which are contained in Chapter VIII.I of an Act respecting Quebec Sales Tax (“AQST”) are likely to affect a wide variety of businesses in Canada who have limited or no connection to Quebec beyond possibly having a single customer or client in the province. While the rules are aimed at on-line transactions, the rules are so broadly drafted that a lawyer in British Columbia who represented an individual living in Quebec is likely to be required to register if their fees were more than $30,000 last year.
GST registrants, who are not registered for QST under the ‘regular’ registration system, and that sell their products through platforms as well as their own websites, should carefully review the legislation to determine who should be collecting and remitting the QST on their transactions.
Determining whether an out of province supplier is required to register for QST can be complicated. Businesses need to look at such issues as who their customers are, whether the customers are likely to be buying for their own use as well as where their transaction is deemed to occur. Fortunately, for GST registered suppliers, the application of QST is generally ‘harmonized’ with the GST/HST including the place of supply rules for goods, services and intangible property. Unfortunately, the same is not true for suppliers that are not registered for GST.
Choice in Registration
Many GST registered suppliers can choose between voluntarily registering for QST under the ‘regular’ system or the new ‘simplified’ system. The key advantage to registering under the regular system (technically Division I of Chapter VIII of AQST) is the ability to claim input tax refunds for QST incurred on inputs as well as having simpler collection requirements. On the other hand, suppliers voluntarily registering under the regular system are likely to be required to post security and have their activities scrutinized by officials in Revenu Quebec whereas registration for the simplified system is done online without the posting of security.
Canadian businesses that sell goods for delivery to consumers in Quebec are required to register under the ‘regular’ system pursuant to s. 409.1 of AQST. Businesses that have missed this requirement, which has been in place since 1995, may want to consider making a voluntary disclosure. However, as noted below, there remain unanswered questions regarding the constitutionality and enforceability of section 409.1 as well as the new requirements.
Other Implications of Registering
We strongly recommend that all suppliers that are not resident in Quebec carefully consider all the legal implications of registering to collect QST such as potential requirements to register and obtain a Quebec Enterprise Number, any French language requirements for contracts and other documents, as well as the application of Quebec’s Consumer Protection Act.
For some suppliers, the cost of complying with the new registration, collection and reporting requirements and the related legal implications may well exceed any profit that is likely to be earned from the Quebec transactions in the foreseeable future. These suppliers may have to make the difficult decision to stop providing goods or services to customers in Quebec.
It should be noted the Canadian courts have not considered whether Quebec or any other provincial government has the authority to govern the activities of non-resident vendors who sell their products to residents of the province or whether a threshold level of geographically targeted activity must exist before a province has jurisdiction over non-resident vendors. To the extent that Quebec intends to enforce their legislation, it seems likely that the courts may have an opportunity to do so.