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Sales Taxes -> GST/HST -> GST or HST alternate collection method (ACM) for direct sellers

Direct Sellers - Alternate Collection Method (ACM)

Direct sellers can get approval from Canada Revenue Agency (CRA) to use the Alternate Collection Method (ACM), which is a simplified method for collecting the GST or HST.

Direct sellers are organizations that sell their exclusive products to distributors or independent sales contractors (ISCs) who solicit orders and sell the products to consumers. Examples are Tupperware, Avon, Norwex, etc.

	Direct sellers charge and account for the GST/HST on the suggested retail price of the products as if they had made the sales directly to consumers.
	Most ISCs do not have to register to collect GST/HST because they do not include revenues from their sales of products in their calculation to determine if they are small suppliers.
	The direct seller accounts for the tax on the suggested retail price of the exclusive products sold to ISCs when the direct seller makes the supply to the ISC.
	The ISC cannot claim an input tax credit (ITC).
	The ISCs recover the tax by charging the tax to the purchasers, but not accounting for the tax (not remitting the tax collected).
	When a direct seller and a distributor of the direct seller are both registrants, a joint application can be made to use the ACM. In this case, the distributor, not the direct seller, will be responsible for collecting the tax based on the suggested retail price.

2 important points, from CRA's GST/HST Memoranda Series 14.1 Direct Sellers:

Supply for less than suggested retail price

33. When an ISC has sold an exclusive product, after March 1993, for less than the suggested retail price to someone other than another ISC and the purchaser paid tax calculated on that lower price, the deduction the direct seller may take in determining its net tax is equal to the difference between the tax calculated on the suggested retail price at the time the exclusive product is sold by the direct seller and the tax calculated on the actual sale price charged by the ISC. Again, the direct seller must pay to or credit the ISC the amount in question prior to deducting the amount from its net tax.

Supply for no consideration or nominal consideration, and appropriation for own use

34. If the ISC sells the exclusive product, after March 1993, for no consideration or nominal consideration (e.g., the ISC gave away the exclusive product) or appropriates the exclusive product for the ISC's own personal use, the direct seller's deduction from net tax is an amount equal to the difference between the tax calculated on the suggested retail price at the time the exclusive product is sold by the direct seller and the tax that would have been payable when the product was sold to the ISC had the ACM not been in effect. Again, the direct seller must pay to or credit the ISC the amount in question prior to deducting the amount from its net tax.

Network Sellers Rules

Network sellers rules can be used upon approval by CRA. When these rules are in use, any commissions or bonuses paid to sales representatives would not be subject to GST/HST, and would not be included in a calculation to determine if the sales representatives are small suppliers.

These rules can be used even if the seller is an approved direct seller for the purposes of the ACM. In order to use the network sellers rules, the network seller must have jointly elected with each of its sales representatives before applying to use the rules, and this election must also be made with persons who become sales representatives while an approval to use the network sellers method (NSM) is in effect.

CRA Resources:

GST/HST Memoranda Series 14.1 Direct Sellers

Revised: October 26, 2023

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