The details.... from 01 December 2023
https://globaltaxnews.ey.com/news/2023-1975-canadas-new-reporting-rules-for-digital-platform-operato...
Canada's new reporting rules for digital platform operators take effect 1 January 2024
- Digital platform operators will need to comply with extensive new reporting requirements in the new year.
- Legislation to implement model rules developed by the OECD for digital platform operators takes effect on 1 January 2024, with the first reporting — and exchange of information by the Canada Revenue Agency with its partner jurisdictions' tax administrations — occurring in early 2025 with respect to the 2024 calendar year.
- Digital platform operators subject to these rules should review their processes and systems to ensure they are able to comply with the reporting requirements.
|
Legislation introduced by the Canadian government to implement model rules developed by the Organisation for Economic Co-operation and Development (OECD) for digital platform operators received Royal Assent over the summer (2023). These rules take effect on 1 January 2024, with the first reporting — and exchange of information by the Canada Revenue Agency (CRA) with its partner jurisdictions' tax administrations — occurring in early 2025 with respect to the 2024 calendar year.
Digital platform operators should determine if they are subject to these rules and, if so, review their processes and systems to assess whether they are able to comply with the reporting requirements.
This Tax Alert summarizes certain key features of the new reporting rules.
On 3 July 2020, the OECD released its "Model Rules for Reporting by Platform Operators with respect to Sellers in the Sharing and Gig Economy" (the OECD model rules). In general, these rules require digital platform operators to collect information on revenues earned by sellers offering accommodation, transport and personal services through platforms and to report the information to tax authorities. The OECD indicated that it developed these rules to limit the proliferation of different domestic reporting requirements and to facilitate information exchange agreements between interested jurisdictions
In its 2022 budget, the federal government highlighted tax compliance issues associated with the increasing use of online platforms. For example, it was noted that not all platform sellers were aware of the tax implications of their online activities. Identifying noncompliance was also an issue, as digital transactions occurring on online platforms were not always visible to the CRA and other tax administrations. To address these concerns, the federal government proposed to implement the OECD model rules for reporting by digital platform operators.
On 3 November 2022, the Department of Finance released draft legislative proposals, and accompanying explanatory notes, for new reporting rules for digital platform operators. Notably, these proposals adopted the optional module to expand the scope of the OECD model rules to include the sale of goods and the rental of means of transportation. As well, the draft legislative proposals did not contain an exclusion from the reporting rules for certain platform operators, which was included in the 2022 federal budget documents. Specifically, there was no exclusion for platform operators that facilitated the provision of relevant activities for which the total consideration over the previous year was less than €1 million and that elected to be excluded from reporting.
On 22 June 2023, Bill C-47, Budget Implementation Act, 2023, No. 1, received Royal Assent. Bill C-47 enacts Part XX of the Income Tax Act (the Act), Reporting Rules for Digital Platform Operators, which implements the draft legislative proposals released on 3 November 2022, subject to minor modifications. The provisions in Part XX of the Act must be interpreted consistently with the OECD model rules unless the context requires otherwise.
Reporting platform operators
For Part XX purposes, a "platform" is any software, including all or part of a website and applications (including mobile applications) that is accessible by users and allows sellers to connect with other users for the provision of relevant services or the sale of goods. This includes platforms that facilitate the collection and payment of consideration for relevant activities, but excludes software exclusively allowing (without any further intervention) any of the following:
- Processing payments in relation to relevant activities
- Listing or advertising in relation to relevant activities
- Redirecting or transferring users to another platform
A "platform operator" includes any entity that contracts with sellers to make a platform available to sellers. In general, platform operators are "reporting platform operators" (and thereby subject to Part XX due diligence and reporting requirements) if they are resident in Canada. A reporting platform operator also includes a nonresident platform operator that facilitates the provision of relevant activities by sellers resident in Canada, or with respect to renting immovable property in Canada. A nonresident platform operator may elect to be a reporting platform operator if it is resident, incorporated or managed in a "partner jurisdiction" (i.e., a jurisdiction that has an agreement with Canada to share information collected under the OECD model rules).
"Relevant activity" means a relevant service or the sale of goods for consideration. A relevant service includes the rental of real or immovable property, the rental of a means of transport, or a personal service. A "personal service" is a service involving time- or task-based work performed by one or more individuals at the request of a user. The Department of Finance has indicated that this term encompasses a broad range of services, such as transportation and delivery services, manual labor, tutoring, copywriting, data manipulation, and clerical, legal or accounting tasks. However, it excludes a service provided by a seller pursuant to an employment relationship with the platform operator or a related entity of the operator.
A reporting platform operator does not include an excluded platform operator. An "excluded platform operator" is a platform operator that demonstrates (to the satisfaction of the minister) that its entire business model does not allow sellers to derive a profit from the consideration received for relevant services, such as ride-sharing services, or that does not have reportable sellers (e.g., large-scale hotel operators).
"Reportable sellers" are active sellers (i.e., sellers that provide relevant services or sell goods, or that have received consideration for such relevant activities during a reportable period) that are determined by a platform operator:
- To be resident in a reportable jurisdiction
- That have provided relevant services for the rental of immovable property located in a reportable jurisdiction or have received consideration in respect of such services
Certain sellers are considered to present a limited compliance risk and are excluded from the list of reportable sellers. The Act defines an "excluded seller" as:
- An entity for which more than 2,000 relevant services for the rental of immovable property are provided during a calendar year (i.e., large-scale providers of hotel accommodation)
- A governmental entity
- An entity, or related entity of the entity, the stock of which is traded regularly on an established securities market
- A seller for which the platform operator facilitated fewer than 30 relevant activities for the sale of goods and for which the total amount of consideration paid or credited did not exceed CA$2,8001 during the reportable period
Information to be reported
In accordance with section 292 of the Act, a reporting platform operator must report certain identifying information for its own business, including its name, registered office address and tax identification number (TIN). Further, an operator must collect certain information for each reportable seller that provided relevant services, rented out a means of transportation, or sold goods. Such information includes:
- Information collected in accordance with the due diligence provisions (see Due diligence requirements, below), including certain identity-related information
- Any other TIN, including the name of the jurisdiction that issued it, available to the reporting platform operator
- Any financial account identifiers (i.e., the unique identifying number or reference of the bank account or other payment account to which consideration is paid or credited)
- If different from the name of the reportable seller, the name of the holder of the financial account to which the consideration is paid or credited
- Each jurisdiction in which the reportable seller is resident
- The total consideration paid or credited during each quarter of the reportable period and the number of relevant activities for which it was paid or credited
- Any fees, commissions or taxes that the reporting platform operator charges or withholds during each quarter of the reportable period
