Every business owner, at some point in time, will have to deal with taxes. They are, after all, their legal obligation to fulfill. So they file tax returns yearly to get their tax bill, try to deduct as much as possible from the account through tax exemptions and refunds, and eventually pay them to keep their business permit.
One of the most common taxes is the sales tax, which is not the same for every country. Here's a little information about the sales tax in Canada and three easy ways to pay it.
A sales tax is a value-added tax that customers pay when they purchase certain goods and services. Unless certain conditions state otherwise, most goods are taxable by law, and the end consumer should shoulder the sales tax of a product, not the business.
However, if businesses like resale were buying goods from a different company, they would have to collect the sales tax; they can then charge their customers the selling price, including taxes, and remit after being paid. Again, it is the responsibility of a product's end consumer to shoulder the sales tax of a purchase.
In Canada, three main taxes make up the sales tax.
The Canadian government mandates a federal tax called the GST which it levies upon all states. The GST comes at 5% of the sale price.
The provincial sales tax, on the other hand, is a local sales tax. It works in combination with the GST. For example, if the GST is 5% and the PST is 7%, the Canada Revenue Agency (CRA) charges businesses a 12% sales tax.
However, not all provinces have a PST. Some provinces charge only GST, while others apply the Harmonized Sales Tax (HST).
Quebec's PST is called the QST. Among all provinces that use PST, Quebec is the only province to differ. The Quebec sales tax rate comes to 9.975%.
In place of the GST and PST, certain provinces opt for a harmonized sales tax. Participating provinces, aside from Ontario, follow the same HST rate, which is a standard 15%, while Ontario uses 13%. Since the sales tax is similar among all HST provinces, businesses can file a single tax return for sales in all relevant provinces.
HST applies to five provinces out of Canada's thirteen. Namely:
Since businesses collect the sales tax through purchasing taxable goods, customers pay the sales tax, and businesses remit them. However, since Canadian sales tax rates differ among provinces, the sales taxes charged to customers can differ.
Canadian businesses follow what they call the “small supplier rule.” The small supplier rule is if you qualify as a small business—a business that makes less than $30,000 in annual revenue on taxable supplies—you're not required to open a GST/HST account, so collecting and remitting sales taxes is unnecessary.
However, most provinces under PST don't cover provincial sales taxes for small suppliers, so while you don't have to pay GST or HST, you might still have to pay the provincial portion regardless of your sales volume.
Previously, the federal government did not require businesses not physically based in Canada to collect and remit Canadian sales taxes. However, new tax policies put Canadian businesses at a disadvantage since their prices would be higher.
Now foreign businesses are now required to pay the GST/HST rate and the PST if their total revenue surpasses $30,000.
Foreign businesses or non-residents are not required to have a physical presence in Canada; they must voluntarily register with the CRA and provide personal solutions to determining where their customers live and what taxes apply to their purchases.
Tax time can be stressful for business owners since calculating and filing taxes can get very complicated. Fortunately, the Canada Revenue Agency has provided three easy ways to pay your sales taxes.
Nowadays, it's becoming less popular to physically go to the bank for all your transactions. Different financial institutions are normalizing electronic payment methods, and it's also become a reliable payment method for the Canada Revenue Agency.
Simply access your financial institution's website or app and make the transaction to pay your sales taxes.
Since electronic payments are becoming more popular, the Canada Revenue Agency devised an online payment system called MyPayment. Check the CRA's website to see the specific guidelines for MyPayment.
Despite the rising popularity of electronic payments, bank runs aren't going out of style just yet; you can still pay your sales taxes through your bank. To pay through financial institutions, simply fill up a form called “Form RC158 - Remittance Voucher”, which you can only get from the bank since there are no soft copies available online.
Should you need to make other tax-related payments, financial institutions also provide the following forms:
If you're planning on paying with foreign currency, you'll have to apply the current exchange rate to your remittance and pay that.
If the other two payment options don't work for you, you can always go old school and remit your sales taxes through snail mail. The Canada Revenue Agency can accept payments via mail or courier, but you'll have to keep the amount below $50,000. Otherwise, you'll have to pay either electronically or through a bank.
Taxes are every business's responsibility; staying in business means properly paying your taxes without error. Not filing your taxes or even filing them improperly—like miscalculating or failing to declare some expenses—could lead to serious repercussions for your business, like legal battles and, in serious cases, jail time.
Here are a few examples of tax crimes all businesses should be wary of.
Generally speaking, tax evasion is failure to pay taxes. The worst businesses commit tax evasion on purpose by undervaluing their taxable assets or not reporting taxes at all. You can get more jail time from tax evasion than tax fraud.
Tax fraud, on the other hand, is simply misreporting your taxable assets. Sometimes, people confuse which assets are taxable and allow themselves to be willfully blind to avoid reporting such assets. Assisting people in committing these acts is also considered tax fraud.
It's important to have a team of experts looking at your tax returns so you won't make any mistakes regarding your taxes.
Any successful business, especially ecommerce businesses, will have a tough time dealing with taxes. Not only are there a ton of transactions to consider, but there are even more policies to be mindful of.If you're feeling wary about taxes, why not call Unloop? Start worrying less about your taxes by booking a call with us! Our finance professionals are experts in Canadian tax policy, making us the best option for your business's tax needs.
Unloop is the first and only accounting firm exclusively servicing ecommerce and inventory businesses in the US and Canada. With the power of people and technology, our team dives deep into COGS and inventory accounting. You are paired with a dedicated bookkeeping team that prepares accurate financial statements, financial forecasts, and can also pay bills or run payroll for you. Come tax time, everything is organized and ready to go, so you don't need to worry. Book a call with an ecommerce accountant today to learn more.