Read e-books? Watch Netflix? You're probably a tax cheat

Look closely there's something missing from the bills you got this month.

No, not your phone bill, not your rent or mortgage, utilities or gym membership.

But what about that e-book from Amazon? Or your monthly payment to Netflix? What six letters are missing from the bill for your World of Warcraft account?

• Special report: Tax season 2016
• Why tax cheats in Canada are rarely jailed
• E-book sales plateau while print books hold place

The answer, of course, is GST and HST.

Companies that operate outside Canada don't charge either tax on their products, and if those products happen to arrive via the internet, there's really no way for authorities to apply an equivalent fee at the border.

I've never heard of anyone who's compliedGeoff Loomer, Dalhousie University

So, e-shoppers end up saving between five and 15per cent, right?

Not so fast. In fact, Ottawa expects Canadians to pay the GST/HST for any applicable good or service no matter where it came from, how it arrived, or if the vendor can even find Canada on a map.

"Generally, the Canadian customers in these circumstances are required under the legislation to self-assess and remit the GST/HST on these supplies," the Canada Revenue Agency said in an email to CBC News.

But very few people know this, according to Geoff Loomer, a tax and legal expert with Dalhousie University in Halifax. He says it's one of those "ignorance-is-bliss" situations.

"People may think they don't have to pay the GST but that's incorrect," he says.

"It's not that people are necessarily evading it. It's just that no one knows."

'Virtually zero' compliance

The situation stems from tax laws that were laid down in 1989, two years before theGST was first charged, and when significant e-commerce was still years away. Under the Excise Tax Act, companies that do business in Canada are expected to register with the government and charge the appropriate taxes.

But an outfit like Netflix which has no stores, employees or other assets north of the border can duck that requirement.

The same goes for iTunes (but not the Apple Store), other media outlets, online games and networks, and e-books from Amazon.com,which come straight from the U.S. company and not its Canadian spinoff.

• E-book prices marked up too high, libraries protest
• Why erotica writers are upset with Amazon

That puts the onus on the consumer. But does anyone actually pay up?

In fact, CRA says 490 returns on"imported taxable supplies" were filed in 2015, bringing in $3.1 million though the majority of those returns were filed by corporations and include transactions for non-digital products such as, for example, the services of an overseaslawyer.

Among individuals,Loomer says, seemingly no one obeys the law. It's difficult to enforce, and any revenue the government would stand to regain has, historically, been minimal.

Compliance is "virtually zero I've never heard of anyone who's complied," he says.

Missing revenue

But consider the numbers. Netflix alone has some three million subscribers in Canada, each paying $7.99 per month.

That adds up to $287.6 million per year. Levying the federal five per cent portion of the GST/HST on those subscribers would net $14.3 million, plus an additional eight to 10 per centfor those provinces that apply additional tax.

That's not a lot of money on a governmental scale, but it would pay a few bills.

And with e-commerce still growing retail e-sales will hit almost $30 billion in Canada this year, according one estimate pressure is mounting to bring sales of online "intangibles" into compliance.

"It doesn't make a lot of sense from a tax policy point of view that we've done nothing about this," Loomer says. "There's no good reason for it."

Closing the gap?

Ottawa has floated the idea, most recently in the 2014 federal budget, which had a line about ensuring "effective collection of sales tax on e-commerce sales by foreign-based vendors."

That led to a round of public consultations, during which the government heard from Canadian companies including Rogers Communications, which complained its streaming TV service Shomi, which charges tax on its $8.99 monthly fee, is at an unfair disadvantage against Netflix.

Finance Canada says that feedback informed Canada's participation in a recent project at the Organization for Economic Co-Operation and Developmentaimed at addressing the "tax challenges of the digital economy."

The government is reviewing that project's final report,according to a Finance Canada spokesman.

Other countries have already introduced a so-called "Netflix tax." Japan's eight per centlevy on "electronic services by offshore providers" took effect on Oct. 1, following similar moves and proposals in Australia, New Zealand, Norway and the European Union.

• Who is proposing aNetflixtax?
• Netflixbound by copyright rules, contracts
• Netflixboosts subscriber base by 5.6 million

But it remains to be seen if those laws will be effective. If a company has no presence in thecountry, there are fewways a government can twist its arm.

Loomer notes that a new or newly enforced tax in Canada would probably require some help from the U.S. the home territory of the biggest e-services to enforce.

In the meantime, the CRA asks anyone who pays for Netflix, e-books, iTunes, the PlayStation Network, Spotify, World of Warcraft or any other online intangibles to please fill out this form. And send a cheque.