Canada Revenue Agency
www.cra.gc.ca
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Direct sellers
Businesses in the direct selling industry sell their products to consumers through independent sales contractors or sales representatives. Their business structure is usually based on one of the two following models:
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direct sellers who sell their products to independent sales contractors who, in turn, sell them to consumers; or
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network sellers who sell their products directly to consumers through sales representatives who receive commissions for arranging the sales.
Direct sellers may apply for approval to use the Alternate Collection Method (ACM), a simplified method for accounting for the GST/HST on the sales of products. Under the changes for fiscal years beginning after 2009, network sellers may also apply for approval to use the new network seller's rules.
Alternative collection method (ACM)
Direct sellers are organizations that sell their products to distributors or independent sales contractors who solicit orders and sell the products to consumers.
Under the ACM, 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.
Under the ACM, most independent sales contractors do not have to register for GST/HST because they do not include revenues from their sales of products in their calculation to determine if they are small suppliers.
Network sellers rules
Network sellers who meet certain conditions may apply for approval to use the network sellers rules for fiscal years beginning after 2009: as a result, the commissions and bonuses paid to sales representatives for arranging for the sale of the network seller's products would not be subject to GST/HST and would not be used for determining whether sales representatives are small suppliers.
A registered network seller may apply to the Canada Revenue Agency for approval to use the new network sellers rules if, throughout the fiscal year, the network seller reasonably expects that:
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it will be engaged exclusively in commercial activities;
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all or substantially all of its total revenues for the fiscal year for sales made in Canada are for sales of products arranged for by sales representatives, or if it is an approved direct seller for the purposes of the ACM, for sales of products made by independent sales contractors;
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all or substantially all of its revenues for sales of products arranged by sales representatives for the fiscal year are for sales of products to consumers; and
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all or substantially all of its sales representatives to whom it pays network commissions during the fiscal year do not receive more than $30,000 in commissions.
In addition, the network seller must have jointly elected with each of its sales representatives before applying to use the network sellers rules.
For more information, including how to apply for approval to use the special alternate GST/HST collection method, see GST/HST Memoranda Series Chapter 14-1, Direct Sellers.
