Many Canadian ecommerce sellers dread handling taxes. The apprehension roots in the difficulty of understanding the many rules and regulations surrounding taxes. Adding to the challenge, especially for ecommerce sellers, are the different rates for sales taxes. Sellers offering services and products in different territories need to keep up with the ever-changing rules on sales taxes.
These troubles make every business owner, especially those new in the field and unfamiliar with taxation, abandon the possibility of understanding taxes and handling the task on their own. While you can delegate taxes to professionals, it still pays to know how it works, even in the most basic sense.
With that, here are the seven frequently asked questions ecommerce sellers ask about taxes. Knowing the answers may give you the confidence to handle your own. Let’s begin!
When you become an ecommerce seller, there are a lot of key dates you need to remember, some of which are tax deadlines. In Canada, you can file your taxes for the previous year’s income as early as February, but the tax filing deadline is on April 30.
The Canada Revenue Agency (CRA) makes the process easier, you can file taxes online. Just be ready with the complete financial details for the whole calendar year and receipts in case the CRA looks for them.
To keep yourself from cramming months before the tax due date, it is best practice to put your business bookkeeping and accounting in place as early as launching your business. This ensures that you will have all the financial transactions recorded throughout the year. You will also minimize the possibility of inaccuracy as your bookkeeper or accountant won’t need to rush.
An income tax return is a document containing a person or a company’s annual income, expenses, and other financial transactions that occurred within the year. It is from these details where the taxpayer and authorities calculate one’s tax liability, which is often paid annually. If there is any overpayment, the taxpayer can request for a tax refund.
Canadian residents, immigrants, indigenous peoples, deceased individuals, people who have left Canada temporarily or permanently, and temporary Canadian residents are all obliged to pay income tax return.
When filing for tax returns, you must declare your total annual income to know how much you need to pay. The Canadian government determines a tax rate depending on your total income. Rates may change yearly. For instance, the 2022 tax rate has already been changed for 2023, so it is best to stay updated. All provinces and territories in Canada submit their taxes to the CRA except for Quebec, where taxes are paid to the Revenu Quebec.
Sales taxes in Canada vary per province or territory, and each charges General Sales Tax (GST), Provincial Sales Tax (PST), a combination of PST and GST, or Harmonized Sales Tax (HST). Sellers and service providers who have a physical store or office and even those selling online are required to pay sales taxes when they earn at least $30,000 in a year.
Sellers are to base the rate they charge on the destination of the package, and here are the rates.
|Total Tax Rate
|Newfoundland and Labrador
|Prince Edward Island
These tax rates are charged for every sale made, which the buyers should shoulder. Yet, it is your duty as a seller to provide transparency in every transaction. Show your customers a breakdown of their pay, including the sales tax charges.
Although challenging, ecommerce sellers like you should always prioritize paying taxes as there are repercussions. The CRA requires one time payments, so when they find out that a business owner does not pay taxes, a collections officer will be assigned to review their case. If found guilty, they can be subjected to pay interest rates on top of the taxes they weren’t able to pay.
The good news is most Canadians are responsible taxpayers, but if the business cannot pay, the CRA can seize the company’s assets and bank accounts, garnish wages, and register a lien on the owner’s home. Tax relief can still be given to business owners (when eligible for it),, and owners can also make payment arrangements with the CRA after setting up a meeting with the agency.
Many bookkeeping and accounting software already have a tax computing feature. They can also integrate with ecommerce sites like Amazon and Shopify. These platforms compute sales taxes and send the data to your main accounting software through integration.
There are also separate software like Taxomate, Taxify, Hello Tax, and TaxJar that can give you the following assistance:
However, for the most comprehensive software, consider QuickBooks. It has features to track, collect, review, and pay your sales taxes. And even when you sell on sites that handle sales taxes for you, you can still integrate the data collected from that platform with the QuickBooks software, so all your data is in one place. Because all your financial transactions are recorded on QuickBooks, you can use it to find the amount of income tax you need to pay.
Whether you sell on Amazon or are still planning to, the first thing you should know is the platform’s Marketplace Tax Collection (MTC).
Because of the Marketplace Facilitator Law (MPF), third-party sellers like Amazon are compelled to compute, collect, report, and remit sales taxes. This is good news for sellers like you as you no longer have to worry about these tasks. All you need to do now is monitor the sales taxes and integrate the data from Amazon into your bookkeeping and accounting software for tracking.
You should also know that the platform also has the Amazon Tax Exemption Program (ATEP), which considers individuals and organizations that are eligible for tax exemption.
As an ecommerce seller, it’s a wise business move to sell on Amazon. Amazon is the largest ecommerce site in the world, and although the competition is tough, there is also a high chance of introducing and selling your products to a broader audience.
Shopify does not offer the same tax assistance as Amazon, but you can optimize the settings in the ecommerce site to make your sales tax management more efficient. You can set up Shopify to add sales taxes upon customer checkout.
To streamline the tax detail determination, collection, and remittance process, you can integrate the data from Shopify into the tax software you use. They can do the following steps after Shopify has charged the correct sales taxes to customers.
You can also integrate all the data from Shopify into your bookkeeping and accounting system so that you can compute your income tax return correctly and quickly by the end of the year.
Knowing some of the tax details can give you confidence as an ecommerce seller. It may make you realize that taxes aren’t that dreadful to handle, especially when you have the right software and tools. You’ll also realize that many ecommerce platforms have made taxes easier for sellers like you by doing the computation, collection, and remittance themselves.
If you are looking for convenience when filing for tax returns, another wise thing to do is to partner with tax experts to whom you can delegate this complex task. Unloop could be the partner you are looking for!When you partner with us, whether you are in Canada or the US, we can help you make tax season less of a worry. Don’t worry about your income tax, either! We’ll handle the bookkeeping and connect you with the best CPAs in North America for filing taxes. Beat the deadline! Connect with us now; we’d love to discuss the details with you!
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.