On July 1, 2022, the grace period for non-resident digital economy companies like Airbnb, Etsy, Turo, and many others, elapsed and they were required to register for GST/HST under Subdivision E. These platforms began collecting and remitting tax, and confusion soon followed among suppliers like Airbnb hosts, Etsy makers, and others that the tax was not being remitted back them but they were still required to account for the tax without having received it from the platform. There is a legislative solution to this problem under ss.177(1.1), where a registrant acting as an agent for a supplier (generally the case with these platform models) must either remit the tax collected to the supplier (host, maker) or both must sign in prescribed form (GST506) an election for the agent to collect, remit, and account for the tax on their return. Where that election has not been entered into, both the agent and the supplier must account for the net tax under ss.225(1).
The CRA is aware that situations like this occur and has created a compensatory policy that states:
“It is not the intention of the Canada Revenue Agency (CRA) to collect tax twice on the same supply. Accordingly, where the supplier and another person are both required to account for the amount as or on account of tax, the accounting of the amount and the remittance of any resulting positive amount of net tax by one of the parties will discharge the liability of both parties.” See GST/HST Policy Statement P-131R for more information.
This policy seems like it would solve the issue but the policy goes on to exclude, in part, some situations, specifically agent/supplier situations where a GST506 election is available and ought to be used:
- where a person acts as agent in making a supply on behalf of a principal. Generally, in these situations, the principal is considered to have charged and collected the tax and is required to account for that tax in its net tax calculation;
- where a registrant acts as agent of a supplier in charging and collecting the consideration and GST/HST payable in respect of a supply made by the supplier (i.e., a billing agent) and has made an election under subsection 177(1.1) of the ETA.
The outstanding question in the 2022/23 tax season will be how the CRA addresses this new situation where the platforms are not jointly entering into a GST506 election with suppliers but are still collecting and remitting the tax. If you are assessed for tax owing on amounts like this, request a free consultation with a ZheroTax expert and let them help you determine whether an appeal is likely to be successful.