Lost in all the brouhaha last week about the “Netflix tax” boogeyman coming to Canada was the important fact that sales tax already applies to the service. It’s just that most Canadians aren’t paying it.
Canada’s tax system is based on self-assessment, which means ensuring adequate payment of all taxes, including sales tax.
Usually, it’s up to the seller to ensure a buyer is paying the appropriate tax, but that’s sometimes more complicated than it seems.
A shop in Winnipeg, for example, would likely charge the provincial sales tax programmed into its register regardless of whether the customer is from Manitoba or Ontario, where the HST is higher. In those cases, it’s up to the Ontarian customer to fill out a form from the Canada Revenue Agency’s website and declare the unpaid sales tax.
It all becomes a bit more complicated with Netflix, because the company has no physical presence in Canada. Businesses like that (think iTunes of yore) are generally not required, under current laws, to register for GST/HST “because those supplies are considered to be made outside Canada,” a spokesman from the CRA wrote in an emailed response to Global News.
But that doesn’t mean Canadians are off the hook.
“A few years ago, before iTunes was registered in Canada, people would pay $0.99 to download a song,” said Frédéric Pansieri, a chartered accountant at Toronto’s Crowe Soberman LLP. “If you were living in Ontario at the time and if you were completely in compliance with the rules, you would have filled out the form and self-assessed the 13 cents on every 99-cent purchase.”
Based on his experience, though, few Canadians appear to actually take that step.
“I’ve never seen anyone using that in practice, but it’s there,” Pansieri said.
So, for all those tax dodgers out there, how come the CRA isn’t banging down your door?
In short, the rule is pretty difficult to enforce on account of having to go after each individual subscriber, Pansieri explained.
Just think of the massive amount of work required to find the people around the country who downloaded songs from the United States or subscribe to Netflix.
And for all that work, what would the government make back? Each Netflix user in Ontario paying the $7.99 monthly subscription fee would owe $12.46 for the year and British Columbia residents would owe about $11.51 over 12 months.
Short answer: the government wouldn’t get too much return on its investment.
“The CRA has limited resources and are probably going after bigger companies where they have bigger fish to fry,” Pansieri said.
The term “Netflix tax” hit a fever pitch last week when the Conservatives released a statement and video chiding the NDP and Liberals for supporting one.
“I’m 100 per cent against a Netflix tax. Always have been, always will be,” Harper said in the video, accusing the Liberal and NDP leaders of “leaving the door open” to a so-called Netflix tax.
But, in effect, there is already a tax on Netflix, just as there’s a tax on its Canadian equivalents, Shomi and Crave.
Neither the NDP’s Thomas Mulcair nor the Liberal’s Justin Trudeau, however, had ever said anything one way or another on the matter; when asked after the Conservative statement and video came out, Mulcair told reporters he has no plan to introduce such a tax, and a spokesman for Trudeau called the whole thing nonsense.
In the video, Harper noted one of his favourite shows is the highly popular Breaking Bad.
“Obviously, we weren’t rewriting Canadian sales tax laws,” a spokesman on Harper’s campaign wrote in an email Monday evening. “We were clear we would not impose any tax on internet streaming services related to content.”
The spokesman did not respond to a question asking whether Harper self-declares the sales taxes owing on Netflix, assuming he’s a subscriber.
There are indications the 2014 Conservative budget called for input on relating to “effective” collection of sales tax on e-commerce sales to Canadians from foreign-based companies.”
Further, the government is “involved in ongoing discussions throughout the international community” on how to apply existing tax rules across the board, the CRA spokesman said.