Disclaimer: Please note this article is not financial advice. The purpose of our blog is purely educational, so please consult a professional accountant or financial advisor before making any financial decision.
The revenue from e-commerce retail sales in Canada has seen an upward trend since 2017. According to Statista, from $21.975 billion in 2017, it rose to $32.442 billion in 2021. The data company forecasts this upward trend to continue until 2025, with predicted revenue of $40.352 billion.
Behind these numbers are millions of eCommerce sellers like you who have ventured into the industry and opened businesses to fellow Canadians and clients worldwide. If you have just begun selling online, you have plenty of tasks on your plate, but one thing you should prioritize is taxation.
Let us help you make your workload lighter by providing you with knowledge about Canada's online sales tax for businesses.
The Different Taxes Paid in Canada
To avoid getting lost, familiarize yourself with the different terms for Canadian taxes. You need to remember four: Goods and Services Tax (GST), Provincial Sales Tax (PST), Harmonized Sales Tax (HST), and Quebec Sales Tax (QST).
Let’s check their definitions one by one.
GST
GST is Canada’s federal tax applied to almost all products sold in physical stores and online. Only those tagged as zero-rate are exempted from this taxation.
Prepare to charge this sales tax if your buyers are from Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Saskatchewan, Quebec, and Yukon. All these provinces have GST either independently or together with PST or QST.
GST sales tax is at 5%, and the rate will still increase when PST or QST is added.
PST
As the name suggests, this is the additional tax imposed by provinces like British Columbia, Manitoba, and Saskatchewan. The tax rate varies per province.
- British Columbia: 7%
- Manitoba: 7%
- Saskatchewan: 6%
So when computing the sales tax, adding the 5% GST to the given PST rates results in the following final rates:
- British Columbia: 12%
- Manitoba: 12%
- Saskatchewan: 11%
An example transaction goes like this: let’s say you sold a pair of rubber shoes at $29.99 to a customer living in British Columbia. For this sale, you have to charge a 12% sales tax.
$29.99 × 0.12 = $3.60
Collect the $3.60 sales tax, and remit it during tax season.
HST
To skip the hassle of computing federal and provincial taxes separately, lawmakers have passed the harmonization of the two through HST. Five provinces, namely, New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island, follow this taxation system, and the rates vary per province.
- New Brunswick, Newfoundland and Labrador, and Ontario at 13%
- Nova Scotia at 15%
- Prince Edward Island at 14%
When you make sales from these provinces, you do not need to look for the GST and PST rates; simply apply the HST rate.
QST
In Quebec, the sales tax consists of the GST and QST, with the QST at 9.975% and GST still at 5%. However, you do not have to remit QST if you satisfy any of the following conditions:
- You sell real estate property.
- You are a small supplier.
- You are not a resident of Quebec.
- You do not have a physical store in the province.
For instance, a nonresident supplier operates in Ontario and does not have a physical store in Quebec. However, they supply to Quebec businesses. In this case, the only tax they should charge the customers is the 5% GST. On the other hand, for individual orders delivered to Quebec residents, sellers need to charge both GST and QST.
Canada Ecommerce Sales Tax: Important Reminders
Did the different sales tax classifications confuse you? Here are some reminders to help you know how much to pass onto your client or whether to charge them at all. Also, get to know the department where you need to submit the sales tax you collected.
Check the customer's province to know what sales tax rate applies.
The first step is to determine the buyer’s address. Remember that the basis of sales tax is not where the package came from but where it is going. For instance, an order coming from Ontario will be delivered to a customer in Manitoba. The sales tax rate to follow is Manitoba’s 12% sales tax rate.
Familiarize yourself with tax specifics for provinces using GST + PST.
The standard procedure in British Columbia, Manitoba, and Saskatchewan is that orders sent to residents of these provinces should be taxed accordingly. However, specific rules on who should pay taxes and who are exempted differ. If you deliver in these locations, it is best to get into the specifics of the local tax regulations.
Know if the goods you sell are tax-exempt.
While almost all goods have sales tax and some individuals have to pay additional tax for their purchases, some products are zero-rated. These are the goods you can buy without paying any sales tax.
- Essential grocery items like milk and bread
- Agricultural products like fruits and vegetables
- Prescription medicine and medical equipment
- Farm livestock
- Fishery produce
These specific groups are also not required to pay sales taxes.
- Goods providers with less than $30,000 annual revenue
- Indigenous people
- Diplomats
- Foreigners using Canada-bought products abroad
If you sell these goods or to these groups, remember not to apply sales tax.
Understand the importance of a tax exemption certificate.
For individual orders, it is clear that sales tax is based on the location of the buyer. But what if you are a raw materials manufacturer and sell not to end users but to product developers? Should you also charge sales tax to your customers?
The levels of resales are a common scenario in the production of goods. A resale certificate will save the business buying your raw materials from paying sales tax as they are not the end user of the final product.
Online sellers are not exempt from paying taxes.
In Canada, Internet sales tax regulations state that online sellers are required to charge sales tax on their orders. With that, there is no confusion about whether you should be collecting taxes from your buyers or not. Regardless if you’re selling in a mall, a stand-alone boutique, or online, sales tax applies if you made a taxable sale to a Canadian customer.
However, as mentioned earlier, it’s best to know the specific ecommerce sales tax rules per province to understand and abide by them correctly.
Know where and how to pay your taxes.
In Canada, you should be familiar with these two offices to pay your taxes: Revenu Quebec for the province of Quebec and the Canadian Revenue Agency (CRA) for the rest of the country.
These two offices implement tax laws and handle all tax-related transactions, from income tax, value-added tax, and excise tax to sales tax. After collecting the sales tax, you need to remit all the sales tax you collected to these agencies.
Steps in Managing Your Sales Tax
Everyone says taxation is a complicated task, but it is relatively easy when done right. Here are the steps to guide you.
Step #1: Determine where your customer’s location is.
Included in your order slips’ delivery details is the specific location where you need to send the package. Use this information to determine the applicable sales tax rate.
Step #2: Compute and collect sales tax.
Apply the sales tax rate according to the package’s destination, and collect the tax charged. Make sure not to spend these taxes for your business as you need to remit them to the government.
Step #3: Remit sales tax to the CRA.
Set the frequency of sales tax remittance with the CRA. You can send the collected sales tax on a monthly, quarterly, or annual basis either physically or online.
How to Make Sales Tax Collection Easier
You can do your sales tax on your own if you are still beginning your business, but can you imagine the increase in the workload when your sales boom? Ecommerce sales tax solutions make your business processes more efficient and lessen your work. Here are some of them!
Automate everything.
Rely on sales tax software like QuickBooks, Xero, A2X, and Hubdoc. They collate sales transaction details and compute sales tax per order. They also store all transactions in the system, so you can run reports to check how much sales tax you’ve collected and other key performance indicators that will help you in decision-making.
Hire a bookkeeper.
Doing the bookkeeping yourself is still manageable at the beginning of your business. Still, you need to delegate this complex task to a trained bookkeeper to ensure the proper tracking and categorization of all transactions.
You can also be sure of data accuracy because one team member focuses on this task only. Meanwhile, you can focus on business operations, product quality checks, and customer service with more free time.
Get accounting assistance.
Taxation is an essential task that can determine your business's success or failure, especially if you do not know how it works. Thus, it is best to have someone well-versed in tax laws and regulations—an ecommerce sales tax accountant.
Your accountant will check your sales tax compliance and create reports from the information gathered by the bookkeeper. Let them take care of tax management and payment on your business too.
Work with Unloop
As a business owner, you are now one of the millions of Canadian ecommerce sellers contributing to the growth of the industry in the country and worldwide. Thus, you should know that the Canadian government requires all physical and digital businesses to charge sales tax on their products.
Depending on the province or territory you send the orders to, different tax rates may apply. To avoid fines for not complying with these regulations, it’s essential to know precisely what types of taxes apply where and how to remit them on time.
We at Unloop offer bookkeeping business solutions. Our team of experienced bookkeepers will help you track and prepare your sales tax information before tax season. Delegate the task to us so that you can focus on scaling your business.
Give us a call now at 877-421-7270. We’d love to hear from you!