Canadian immigration laws and procedures. Guide for foreign and Canadian immigration law.

E-Commerce and Sales Tax

Under Canadian tax law, foreign companies “carrying on business?in Canada are subject to Canadian federal income tax on all business income earned in Canada. A foreign business is a subject to Canadian income tax if it "solicits orders or offers anything for sale in Canada through an agent or servant." Thus, a foreign e-commerce business could be found liable for Canadian taxation if it simply solicits goods or services to Canadian consumers via a website. The threshold for establishing a nexus to justify income taxation under Canada's domestic laws is very low.  Non-resident e-commerce businesses could be subject to Canadian tax liability on any offer or solicitation of products into Canada. The tax threshold for source taxation changes substantially when the foreign e-commerce business is a resident of a country that has entered into a bilateral tax treaty with Canada.

E-commerce income taxation in Canada depends on the characterization of income from the sale or transfer of certain intangible goods and services. The sale of computer software over the Internet to a Canadian purchaser generates revenue that may be treated as either a royalty or as a business income.If computer software revenue were found to be a royalty payment to a foreign vendor, CCRA would levy a tax on the gross amount of royalty.  In such cases, the vendor's country of residence (residence country) levies further tax on the royalty payment in accordance with its domestic tax rules, but provides a credit to the resident vendor for foreign taxes paid. On the other hand, where computer software revenue is found to be a business income, CCRA’s treatment of such income would be different.  If the recipient of the income is resident in a country that has a tax treaty with Canada, the source country will only be allowed to tax the business income if the foreign software vendor has a permanent establishment within Canada.