Canadian Sales Tax for Online SellersBrian Jang ON April 24, 2021
As more businesses, particularly smaller ones, adapt to recurring shutdowns by selling online, new records are being set. Statistics Canada estimates that retail e-commerce sales more than doubled for the period of February through May of 2020 compared to 2019. But while selling online has been a massive benefit to businesses during a difficult time, it also comes with tax obligations that cannot be overlooked.
Determining Your Tax Obligations
When your inter-provincial sales take place, what is the appropriate level of taxation? Is it determined by the province of the seller or the buyer? In this instance, the Place of Supply rules from the CRA determine how to proceed: when an online purchase is made, taxes are charged according to the province where the product is going. That is to say that a product bought by a customer in Ontario from a seller in BC will be taxed 13% HST.
Most goods and services in Canada are subject to the federal Goods and Services Tax/ Harmonized Sales Tax. The rates vary by province as follows:
- 5% GST: Alberta, Northwest Territories, Nunavut, and Yukon
- 11% GST + PST: Saskatchewan (5% + 6%)
- 12% GST + PST: British Columbia (5% + 7%), Manitoba (5% + 7%)
- 13% HST: Ontario
- 15% HST: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island
- 974% QST: Quebec (5% + 9.975%)
Selling to the US
When selling to a buyer outside of Canada, you do not need to charge GST, HST, or PST. When selling to the US, your customer will likely pay sales and import taxes. You will only be required to charge the state sales tax when you have a State Tax Nexus, which means you have a presence in a particular tax area. Previously, most states would only require that you collect sales tax on sales to customers if you maintained a physical presence there. As of the 2018 case of South Dakota vs Wayfair, however, the US Supreme Court declared that you could be considered to have a presence in a state when you sell goods or services there.
While this means that a state is now free to impose sales tax on out-of-state sellers selling to their residents, each state has their own set of rules and typically sets a threshold of $100,000 in sales, or 200 transactions.
Check with Your Platform
Your marketplace platform may be able to simplify the process of charging taxes for you. Shopify, for example, allows for the automatic management of tax rates charged to customers once you have determined where you are responsible for collecting taxes. The platform will automatically apply the correct tax once the customer enters their address.
Canadian sellers using Etsy are also able to specify the appropriate tax rate by state and by province if they need to charge tax. Once the tax rates have been added, creating new listings will have the tax rate applied automatically.
Taxes and the Small Supplier
Most small businesses in Canada do not need to collect the GST/HST provided they are categorized as a “small supplier” with sales below a threshold of $30,000 CAD. If your revenue over the past 12 months exceeded $30,000, you will be required to register for a GST/HST account and begin collecting taxes on your sales to remit to the CRA. If you need to complete the registration process, you may do so via the Business Registration Online (BRO) Program. You will require your Social Insurance Number, business name and address, and information regarding your business.
There are occasions when opting into the GST/HST program is a good idea, even when you are not required to do so, such as when sales indicate large growth. Setting up proper bookkeeping right from the start is also a wise decision.
Different Provinces, Different Rates
As you have seen, rates vary across the country, depending on the province’s combination of GST, HST, and PST, even though the introduction of the GST had been intended to be a national sales tax standard for the country. It is therefore a good idea to stay up to date with sales tax changes across the country.
It is your responsibility to ensure that you are charging the correct sales tax and submit a GST/HST on either a monthly, quarterly, or annual basis.
For all your accounting needs, reach out to BCJ Group.