Risk of Letting Amazon Remit GST on Your Behalf

Recently, a new tax law has required Amazon to collect GST from the customers who purchased goods from its website. Many Amazon sellers received a statement from Amazon, showing the GST collected and remitted by Amazon. Many sellers conclude that, since Amazon has been taking care of the tax filing, they have nothing to worry about. This may not be true.

Registrant vs. Non-Registrant

To illustrate, let’s start with Alan and Brian. Both of them are selling a $100 toy to customers in Alberta. (Alberta has 5% GST and no PST, making numbers easier to demonstrate.) Alan’s business had just started out and was far below the required amount to register for GST. Brian’s business, on the other hand, is a million-dollar business and has already been a GST registrant since several years ago. Brian also gave his GST number to Amazon so that Amazon can collect GST from his customers.

In the past, Amazon let its 3rd party sellers decide GST on their own; Amazon merely deals with payments and shipments. For Alan, whenever he sold his products, Amazon collected $100 from the customers and deposited $100 (minus processing fees) into Alan’s bank account. Because Alan is not a GST registrant, he didn’t ask for GST from the buyers and Amazon didn’t collect it.

For Brian, Amazon would collect $100 + $5 GST from the buyers and deposited $105 (minus processing fees) into Brian’s bank account. Later on, Brian filed his GST return and remitted the $5 GST to the Canada Revenue Agency (CRA). Brian, like many other traditional retailers, felt that he had a disadvantage against the small sellers like Alan.

Impact of the July 2021 Tax Change

In July 2021, after getting strong pushbacks from the brick-and-mortar retailers, the Canadian Government implemented the new tax rule. Amazon Canada now has to collect GST no matter whether the 3rd party seller is a GST registrant or not. How Amazon handles the transactions depends on the seller’s GST registration status.

A. GST Registrants

For GST-registered sellers like Brian, things are handled in the old way. Amazon collects $105 from the customers and deposits $105 (minus processing fees) into Brian’s bank account. It’s still Brian’s obligation to file a GST return and remit the $5 GST to CRA.

B. Small Suppliers

For small suppliers like Alan, who didn’t register a GST number because of his low sales volume, Amazon will now collect GST from the customers. Amazon will collect $105 from the buyers and deposit only $100 (minus processing fees) into Alan’s bank account. Later on, Amazon will file a GST return and remit the $5 collected to CRA.

In other words, customers always pay $105 under the new tax rule; whether the actually seller (Alan or Brian) is a small supplier doesn’t matter anymore. The only difference is who remits GST to CRA. Because Alan doesn’t have a GST number and cannot file a GST return as a result, it’s very natural that Amazon is chosen to be the entity who remits GST.

C. Not-So-Small Suppliers

The situation became complicated for Charlie, whose business had annual sales of $100,000 but didn’t realized that he was no longer a small supplier under the tax law. He should have registered for GST in July 2021 but didn’t do so until June 2022, almost one year later, when he met with his accountant for personal income tax.

Because Charlie didn’t register GST on a timely basis, Amazon only deposited $100 into his bank account after each sale, assuming he was not a GST registrant. Although his customers paid $5 GST, that money never entered his bank account.

Charlie now has to file a retrospective GST return for the sales between July 2021 to June 2022. Because his revenue reached $100,000, he needs to remit $5,000 to CRA. He believes that, since Amazon already remitted his $5,000 to CRA, he doesn’t have to remit it again. Right? Well, CRA never officially says so.

Amazon Collects GST on Behalf of Amazon – NOT you

The first thing Charlie realized is that the $5,000 remittances were not paid into his GST account. Remember Amazon only handles the remittances when the sellers are (or believed to be) not registered. Since Amazon didn’t know Charles has a GST number, Amazon could never have remitted GST under his GST account; Amazon could only remit GST under Amazon’s own GST number. Since the payment were not made under his name, he couldn’t use it to offset his GST liabilities automatically.

The second thing Charlie realized is that CRA’s new rules only applies to Amazon; his role as a 3rd party seller was never mentioned in the tax change. So he is probably still governed by the old rule. Under the old rule, a GST registrant needs to collect GST; when he failed to do so, he has to pay the under-collected GST from his own pocket. The new rule never mentioned that once Amazon pays the GST collected to CRA, Charlie’s obligation to collect GST has been fulfilled or relieved.

Now a great uncertainty has arose on Charlie’s business. His best defense is an administrative policy CRA issued back in 2004: P-131R. This policy was issued for other situations and its title clearly states it is only applied “in limited circumstances“. CRA has not yet confirmed whether it will apply this policy on similar cases.

Furthermore, an administrative policy is not a tax law; whether CRA is willing to apply the policy is totally left to its discretion. Charlie has to rely on the goodwill from CRA. Essentially, Charlie has neglected his obligations under tax law and hopes CRA will forgive him because no harms have been done.

Conclusion

The new GST rule imposes GST liabilities upon Amazon. When Amazon collects GST from your buyers and remits the taxes to CRA, it settles Amazon’s new liabilities to CRA. Neither CRA nor Amazon confirms that your sales tax liabilities as a GST registrant have been settled by the remittance.

Your delay in GST registration could cost you dearly. We recommend that you register for GST as soon as you approach the registration threshold and control the GST filing yourself. Giving control over your tax matters to Amazon is never a good idea. You should plan your GST registration and inform Amazon your registration as soon as it’s done.

Sales tax rules for online sellers are complicated. If you feel confused, you are not alone. You should find an experienced advisor like us to assist you.