GST issue for Canadian Websites

Submitted by Jonathan Spencer, Thorsteinssons LLP...

An argument about a porn site will create GST problems for Canadian websites. The Federal Court has ruled that Canadian websites must collect GST on charges to non-residents for access to an internet website. Dawn’s Place Ltd. operates a website which offered adult images for a membership fee allowing members to download images and video. Dawn’s Place was assessed for failure to collect 6% GST on access charges to non-residents. Although the company appealed the decision, the Federal Court of Appeal has now ruled that GST properly applied because access to a website is not the provision of intellectual property. The Court has ruled that the acquisition of data or images by a non-resident is taxable, holding that a specific rule for the provision of a copyright does not apply.

This will create problems for Canadian-based websites who, for the most part, do not currently collect GST on membership or access fees charged to non-residents. Right now, it is not known whether Dawn’s Place Ltd. will appeal to the Supreme Court, or whether the law will be amended to correct the problem. In the meanwhile, web designers, developers and sponsors should review how they are billing from a GST perspective and consider whether they need to correct their billing processes in light of the case.

Here is a link to the case - http://decisions.fct-cf.gc.ca/en/2006/2006fca349/2006fca349.html