Canadians ... members, billers & GST
 

Had a very interesting discussing with a friend last night about the Canadian 7% Goods and Services tax. Normally if you sell goods or provide services you have to charge all people/businesses in Canada that you serve this 7% tax(can be included in price). Sorta like the VAT in Europe.

Now for anyone that is in Canada and processes/used to process with a cross-border biller (ie IBILL, CCBILL, EURODEBIT etc..), we could say that we are doing a 'service' to the biller sending them customers (they own them, they cancel them, they have the CC info, we provide access to IBILL clients to our adult sites) and we get 85-89% of revenue. Since IBILL is outside Canada and income comes from them, there would be 0% GST charged.

Some people may say 'but they are our customers', in which case, would we have to print out a list of all transactions and note down the canadian ones and pay to the gov 7% for them revenue incurred from those transactions?


Which brings me to my next point.. what about Canadians using ProBilling ? They will get a checks/wires from ProBilling each month from their Canadian banks and since they are a Canadian business and you are a Canadian business, YOU must collect GST for the amount you are receving. This means a 7% increase in our income tax.

:helpme

You're completely right. When a canadian company pays you VS. an american(offshore) you have to claim it ;(

The difference is, if you deal with probilling and you are canadian, I am pretty sure you can ask them to pay you the 7% GST on top of what they own you, because they can then claim that back in their tax report, since a company in Canada does not have to pay taxes on their products and services. (Well, they do, but then they get reimbursed by the government...)

I am sure this is one way to do it.

Mortimer

Also, you (or ProBilling or whoever) would not pay GST on memberships paid by non-Canadians. When an American consumer or company buys from a Canadian company, they are not charged the GST. (or in the case of tourists, they are charged and then fill out a refund form to get the money back). So worst case scenario is it is 7% of your Canadian membership income, not 7% of all your membership income. Am I right?

It's probably a good question to ask ProBilling how it works.

you should read this for more info:

http://gofuckyourself.com/showthread...threadid=78280

i don't feel like discussing taxes today :glugglug

I would check with revenue Canada about this, but in my conversation with them GST is only applicable on Tangible Products over the amount of $30,000, there is no GST charge on a membership, and if a company in Canada is charging GST on memberships, then they are screwing the consumer.

my 2 cents

no, they are not screwing the consumer - it is the company that's being screwed, as we have to swallow the cost (obviously we can't charge gst to our members). the equivelent of putting cement blocks on our feet in relation to competition.

don't report gst on earnings (we didn't, as we clearly thought it didn't apply). but after a gst audit, we found out otherwise.

2 years retroactive gst on all earnings, as well as all future earnings. some one will need to fight this right to the top, in order to change the government's current policy. read the thread i posted above.

quiet - do have a legal firm that has any idea how the internet works? I can't seem to find one in Vancouver (on my third firm now).

And I just talked to a GST employee the other day about this subject and the guy said that even if I have an address on file that shows the client is based outside of canada (epoch sends this info in the signup emails) that I still have to charge/pay GST on any sale to that client. That client would then have to go to GST and ask for a reimbursement?! I am hoping that GST employee had his head up his ass (but somehow I fear he may be correct).

Messed up.

the firm i used when going through the gst audit (and looking at my options to continue fighting it) was:

http://millerthomson.ca

based out of Calgary (though we were in Banff at the time). be warned, they are breathtakingly expensive :)

yes, that sounds about right. the bullshit reasoning given to me by the gst audit board, was that an American (for example) could have signed up for a membership while in Canada on vacation. Therefore GST must be charged in all cases. i shit you not.

here's a quick quote from a Miller Thomson email i just found:

indeed.

Thanks, I expected they would be expensive but I am soo tired of explaining what this "internet thing" is every time I talk to my lawyers.....


That is EXACTLY the same type of BS I am dealing with now. I REALLY do not want to pay GST on all my earnings for the past two years.

Wasn't GST supposed to be a temporary tax? Who the hell let that one slip by?

Taxes for internet stuff is fucked up in all countries :(

They have no idea of what they're talking about and dealing with. It's just "GIMME THE MONEY"

:1orglaugh :1orglaugh

only the silly braniacs who take what Liberals say as gospel believe that.

hopefully you can avoid it. so you are audited then?

i will be creeping towards 1000K paid out to GST by the end of November. put that in your pipe and smoke it lol :glugglug

Quiet, as a free site operator - do I need to get a GST number and start paying 7%?

What about consulting fees - payed by an american firm - does GST need to be payed on that?

Are you saying that regardless of how the income is generated and regardless of your business organization (corp, sole, or none) - if it comes from the US you must pay GST on it?

BTW - what overall tax % are you canadians paying?

I never did anything with GST last year and paid around 23% tax.

free sites - well, if you're paid via affiliates i don't see why you'd have anything to worry about (but i'm no expert). my situation is with paysites. specifically membership fees.

i'd talk to a lawyer if you're concerned about anything...

we are taxed to death here in Canada :glugglug

Hmmm this debate would be valid if the members are considered OURS. But IMO they belong to IBILL/CCBILL. I mean we provide a service for IBILL/CCBILL for members from their system to access our sites. IBILL sends us the check and keeps a %. IBILL is from US, no GST right ? I mean the billing-to-billing relationship is ibill to customer.

If you consider the customer to be yours, then do you claim 24.95 or whatever the membership price as gross and then deduct the 11% from IBILL as deduction and so on ?

there is nothing open up to debate. they will take 7% if they find out you run a pay site.

but hey, don't take my word for it :glugglug

i don't claim/consider the customer to be anything. the government does that.

i pay gst on actual wired money coming in every two weeks.

I believe you'd only pay GST if you make over 25-30k per year and if the affiliate program is from Canada (ie... Gammae, Platinum, AdultBouncer). Kinda stupid if you ask me because this discourages Canadian B2B relationships.

wouldn't it make sense to open a US company to avoid this then?

it was a possibility we looked at at the time.

but there were and are many negatives. you open yourself up to US litigation. you open yourself up to US obscenity laws. you expose youself up to US IRS tracking.

of course, with the new visa regulations, it's becoming a lot more difficult (but not impossible) to avoid the above :glugglug

i'll go after my gst at the proper time

i'm going to be speakign about this with my accountant on mon - but just another idea.

you stated something about blocking canadian IPS and that it wasn't sufficent- what about a disclaimer as well that says you cannot purchase if you are located in canada at the time of purchase?

with a seperate link for canadians and people who are located in caanda at time of purchase so you can have seperate tracking on them?

I'm guessing you wouldn't know anything about affiliate programs right? If someone gets paid from the US for referring memberships.. they still have to pay 7% on all income ?

I'll let you know what my accountant says - but affiliate income I would think would be treated more like a paycheck of sales comissions.

another thing...

GST must be paid out from gross... if you sell membership at 19.95 then you have to pay 7% from 19.95 ? Then the 11% from IBILL would just be a deduction on the income tax ?

yes, we figured out a way to block all canadian subscribers based on their credit card mailing address. along with a disclaimer.

that's when they said that because an American/etc could be vacationing in Canada at the time they signed up, everyone MUST pay GST initially.

most (maybe all) accountants will tell you that you should be fine (ours did for many years). our current accountant is still blown away by what ended up happening. we had no idea the govt would take this position until the audit - and at that point we got the tax lawyers involved. ugly.

edited to again emphasize that this is from the position of a paysite owner ONLY. regardless, talk to a tax lawyer if you are concerned...

dude, talk to a lawyer. sorry, but i don't want to start giving out advice here on how to handle things :)

Examples of goods and services taxable at 7% or 15% include:

commercial real property and newly constructed residential real property;
rentals of commercial real property;
sales and leases of automobiles;
gasoline;
car repairs;
soft drinks, candies, and potato chips;
clothing and footwear;
advertising unless provided to a non-resident of Canada who is not registered for GST/HST ;

Examples of goods and services taxable at 0% (zero-rated) include:

basic groceries such as milk, bread, and vegetables;
agricultural products such as grain, raw wool, and dried tobacco leaves;
most farm livestock;
most fishery products such as fish for human consumption;
prescription drugs and drug dispensing fees;
medical devices such as hearing aids and artificial teeth; and
exports most goods and services taxable at 7% or 15% in Canada are zero-rated when exported

yes, that's basic information.

if you find a way to get back all of my gst yourself - i'll pay you $25000. no joke. it's going to cost me much more than that to fight this (when i eventually do).

as soon as it's all back, i'll write you a check.

thanks for your input on this. I really appreciate your info on this as much of this pertains to several ventures I'm involved in and will require some serious investigation with my tax and legal advisors.

But you're Canadian so then I'd have to pay GST on that 25k :1orglaugh

make it fair for the guy, 5-10% of your traffic probally was canadian and most likly you'll have to pay GST on that. tell him if he gets 90% of the gross GST you paid back you'll pay him $25,000. :P

Some of you guys may find this interesting if you can sift through a lot of the boring crap that doesn't apply to us http://www.ccra-adrc.gc.ca/tax/techn...scussion-e.pdf

hehe

Can someone find out about US affiliate programs - whether or not we need to pay GST on that income? I'm sure most of us Canadians all use them to some degree.

I am still looking for a Canadian tax attorney that understands all of this.

Ok, I don't know if this set of recommandation has been approved by the government or not, but if these are the rules concerning electronic commerce and that they must be applied by the GST board, there is something very interesting at the end of page 62-beginning of page 63. From what I have read in the pages before that, the comittee considers the type of product we deliver an Intangible Personnal Property, but I cannot seem to find if we get in the category "Intellectual Property" or not. This is a major difference, since if our product is considered to be an "Intangible Personnal Property that is Intellectual Property", we should be able to have terms and conditions in the contract that prohibit the use of our product in Canada, and therefore we would not have to charge taxes to "non-resident and non-registered". We would have to charge taxes to all those that are residents, registered or have permanent establishment, but that means a small percentage of the overall number of customers.

However, if our product is considered to be an Intangible Personnal Property that is not Intellectual Property, we are required to charge taxes to everyone because of that argument:
"As there are no restrictions on the place of use of the intangible personnal property, the supply is made in Canada. The supplier is reuiqred to collect tax. Since this is a supply of intabgible personnal property other than intellectual property the supply is not eligible for zero-rating."

I am going to try and find if our product is considered to be of intellectual property. That would make a huge difference.

Of course, that only applies if those recommandations are now effective.

I can't see affiliate income as being any different than sales commission - which is what it is and not GSTable.
But I will find out.

Page 60 of that pdf.... 'a supply of a service made to a non-resident person is zero rated' however in the exclusions from the zero taxable provision they say: "a service of acting as an agent of the non resident person or of arranging for, procurring or soliciting orders for suppliers by or to the person." hmmm

now even lower they say there are zero rated provisions for stuff excluded from them the general provision such as:
a supply of advertising service made to a non resident person who is not registered.


Looks to me like they are contradicting themselves.

Interesting stuff above.

I've been through two GST audits in the last 4 years.

My first when all my income was as an affiliate. My accountant wrote a letter explaining how the income was all sales commission paid from US companies, and they were satisfied with that.

The second was this last summer. My income for the tax year was now 95% from my own paysite, so the situation was different. This time the accountant explained in a letter how the members are CCBill's member's (and not really mine) as proven by the fact that I do not have access to their credit card numbers at any time and CCBill has primary control over the usernames and passwords, and therefore again the sales revenue is zero-rated. Again, they were satisfied with that.

That's not to say that this is is the end of it. The accountant said that the GST tax code is somewhat vague in this area. But the info we supplied seemed to satisfy the particular auditor we had.

Whoa CoolE that is great for you, and quite the opposite of what all the other Canadian paysite owners are experiencing.

Thanks for looking into it Sleazy - it will be interesting to hear what your people say.

In this other thread:
http://gofuckyourself.com/showthread...threadid=78280

Doc says:

It seems that paysite revenue and sponsor revenue are grey areas. What about web consulting fees collected from Americans?

See thats my concern too, I've been doing what could be classified as consulting. I spoke briefly to an accoutant the other day and he advised me to speak to some accoutants that deal with offshore stuff. :Oh crap