Taxes are every business owner's legal obligation. In ecommerce, sales tax is one of the most prominent. However, not all ecommerce businesses, particularly those with a platform on Amazon, pay taxes on sales the same way.
Here's a quick guide on Canadian sales tax policies so you can manage your taxes better as an Amazon seller in Canada ahead of tax season.
What Is Sales Tax?
A sales tax is a value-added consumption tax that tax authorities include in the sales price of goods and services. The sales tax is paid at the buyer's expense, which the seller must file to the appropriate tax authorities.
What Is the Sales Tax in Canada?
The sales tax, while consistent among countries as an attachment to purchasing goods and services, comes in different computations depending on a nation's tax policy.
The Canadian government imposes three different taxes for the computation of a sales tax:
- Federal Goods and Services Tax (GST)
- Provincial Sales Tax (PST)
- Harmonized Sales Tax (HST)
Federal Goods and Services Tax (GST) and Provincial Sales Tax (PST)
The federal goods and services tax, or GST, is a value-added tax imposed by the government on goods and services.
Provincial sales tax, or PST, on the other hand, is a different value-added tax levied locally on the same goods and services that business owners have sold.
The standard rate for the GST is 5%, while the standard rate for the PST is 7%.
Quebec Sales Tax (QST)
The Quebec Sales Tax is similar to the Canadian provincial sales taxes (PST) in function, with only the rate being different. If the provincial sales tax is at 7%, then the Quebec sales tax is at 9.95%
Harmonized Sales Tax (HST)
The Harmonized Sales Tax (HST) is a uniform rate for five of the thirteen provinces and territories of the Canadian government. In provinces following the HST, the GST or the provincial sales tax PST do not apply. Instead, there is a single rate for all five provinces, which is 15% (except for Ontario, which charges a 13% sales tax but is still under the harmonized sales tax).
With the harmonized sales tax (HST), you only need to file one (1) tax return for all five provinces, removing a bit of the hassle of doing your taxes.
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Alt name: The Canadian Revenue Agency in a heading.
How Do You Compute Sales Tax?
Now, here's where it can get confusing. You can compute Canada's sales tax in three ways.
First, there is the standard federal sales tax plus provincial taxes. In these provinces, you must add the federal goods and services tax to the local taxes.
For example, the sales tax in British Columbia and Manitoba is 12%, coming from a federal sales tax of 5% and provincial taxes of 7%.
However, some provinces do not impose provincial sales taxes and instead collect only the federal sales tax of 5%. Such provinces include Alberta, Nunavut, Yukon, and the Northwest Territories.
Second, there is the HST. Since the federal taxes and local taxes no longer apply, you can mark your sales tax in provinces under the HST at 15% (except Ontario, with an HST rate of 13%).
AMAZON CANADA SALES TAX CHEAT SHEET
In case the numbers confuse you, we've provided a list of the different Canadian sales tax rates below:
PROVINCES USING HST
- Newfoundland/Labrador (15%)
- New Brunswick (15%)
- Nova Scotia (15%)
- Ontario (13%)
- Prince Edward Island (15%)
PROVINCES USING GST + PST
- British Columbia (12%)
- Quebec (14.995%)
- Saskatchewan (11%)
- Manitoba (12%)
PROVINCES USING GST ONLY
- Alberta (5%)
- Northwest Territories (5%)
- Nunavut (5%)
- Yukon (5%)
Does Amazon Collect Sales Taxes for Sellers (Canada)?
Recent changes in Canadian tax policy have allowed marketplace facilitators (MPF) to handle tax work for third-party sellers. MPF legislation defines a marketplace facilitator as a marketplace that allows third-party sellers to sell physical and digital property, goods and services online. Amazon, being an MPF, can now collect, calculate, and remit taxes for their third-party sellers on taxable sales covered by MPF legislation.
However, some third party sellers are required to collect, calculate, and remit their own taxes. Regardless of how you go about collecting taxes, as an Amazon seller in Canada, you are expected to fulfill your tax obligations.
Paying Amazon Seller (Canada) Sales Tax
Fulfilling your tax obligations as a Canadian seller can be tedious, but it must be done. Failure to file and remit sales taxes could lead to criminal charges and could foresee the end of your time as a business owner.
Who Should Pay Sales Taxes?
As the business owner of a Canadian company, you're obligated to pay your taxes. But for your sales to be taxable, you'll have to open a sales tax account with the Canada Revenue Agency, also known as a GST/HST account.
Even foreign Amazon sellers with an online store who have a gross income of over $30,000 in Canadian sales are required to open a sales tax account to pay HST/GST.
If you're a Canadian seller with worldwide sales less than or equal to $30,000 for a period of 12 months, you're considered a small supplier and are prohibited from filing for and charging sales taxes. You can collect and remit sales taxes on the product or service that surpasses $30,000.
So, regardless if you're a Canadian seller or an international seller, you're going to have to pay GST/HST.
When Should I Pay Sales Taxes?
Sales tax filings in Canada usually run from January 1 until April 30, with income tax returns collected around February.
On the other hand, payment for Canadian taxes is usually collected monthly or annually. If your business income is less than $1.5 million in sales, then you can pay annually. In some provinces, however, the cap is lower.
Manitoba has a ceiling of $75,000 dollars before being required to pay annually; for Saskatchewan, it is $60,000. In British Columbia, you pay your sales taxes monthly during the first year of your business. Then if your taxes are paid on time during the first year, you'll be paying the next few years annually.
How Do I Pay My Sales Taxes?
You can pay your GST/HST in three ways:
- Remit at a financial institution
- Remit electronically
- Send by mail
You can pay your GST/HST using a financial institution's transaction methods or online banking services. The Canadian Revenue Agency (CRA) has also established a new online payment method called MyPayment. You can try different payment options using MyPayment. Check their website for different payment options for businesses and individuals.
On the other hand, if you want to pay your GST/HST through a financial institution, use Form RC158, Remittance Voucher - Payment on Filing to pay the amount you owe. These forms aren't available online since they come in pre-printed format.
The following tax-related forms are also available in financial institutions:
- Form RC159, Remittance Voucher - Interim Payments
- Form RC160, Remittance Voucher - Amount Owing
- Form RC177, Remittance Voucher - Balance Due
You can also send your payment by mail. However, payment sent by mail should be under $50,000, regardless of currency. Any mail equal to or above $50,000 should be remitted electronically or through a financial institution.
If you're not paying in Canadian dollars, simply pay the equivalent amount in the available currency.
Let Unloop Take Care of Your Taxes
There are so many things to think about when it comes to taxes. Worse, getting something wrong can mean hefty penalties for your business. We understand that filing taxes can be complicated, especially for new ecommerce sellers like you. If filing your taxes is making you dizzy, then you might need the help of a tax professional.
Unloop can help you file your taxes and more! Our team of professionals can handle any accounting problem you can give us—just give us a call and see what we can do for you.