Ottawa is moving to tax big tech.
Canada’s federal government is planning to force foreign-based technology firms such as Netflix (NASDAQ:NFLX) and Airbnb to charge their users a sales tax in a move aimed at boosting Ottawa’s coffers by as much as $6.5 billion over the coming five years.
The new taxation plan, outlined in the government's fall fiscal update, is an attempt to level the playing field between Canadian companies and foreign-based digital corporations that have been largely exempt from paying federal sales taxes. Some provinces such as Saskatchewan, British Columbia and Quebec introduced provincial taxes on streaming services such as Netflix earlier this year.
Ottawa announced Monday that any foreign-based company selling digital products or services to consumers in Canada will be required to collect and remit the Goods and Services Tax or Harmonized Sales Tax to the federal government. The new tax changes are proposed to begin on July 1, 2021.
Those taxes will include any sales on products or services made through digital marketplace platforms, sales to Canadians of goods that are located in Canadian fulfillment warehouses, as well as any companies whose platforms help to facilitate short-term rental accommodations in Canada.
However, the new taxation moves wouldn't see streaming services such as Netflix, Amazon.com Inc.'s (NASDAQ:AMZN) Prime Video, Walt Disney Co.'s Disney+ (NYSE:DIS), and Spotify (NYSE:SPOT) meet certain Canadian-content requirements, something the Canadian Radio-television and Telecommunications Commission? (CRTC) recommended in a report released earlier this year.
The CRTC estimates that streaming services record annual revenue of roughly $5 billion, according to its most recent financial data. The federal broadcast regulator said in January that Ottawa should require foreign streaming services to invest in local programming rather than "digital taxes" that would likely get passed down to consumers.
Ottawa is also considering new corporate taxes for foreign-owned digital corporations and is working with the Organisation for Economic Co-operation and Development (OECD) to develop a framework that it expects to provide further details on in the next budget. It expects the new measure will result in $3.4 billion in new tax revenue over the next five years once it is introduced sometime in 2022.
In addition to the new taxes imposed on digital services, Canada will also limit the amount of employee stock option grants that can qualify for tax deductions to $200,000. That limit will not be subjected to Canadian-controlled private corporations such as start-ups.
