No matter your location or where your online business operates, if you serve customers in Canada, it’s essential to adhere to GST for digital businesses Canada. This comprehensive guide covers federal digital sales tax laws in Canada, catering to customers from Alberta to Nova Scotia.
It’s important to note that certain Canadian provinces have their own distinct sales tax systems. For information regarding these provincial regulations, please refer to our separate guides.
Digital Products
First, let’s clarify the nature of your sales activity in Canada. Are you marketing digital products?
- A digital product refers to any item stored, delivered, and utilized in electronic format. These can be goods or services that customers obtain via email, download from the internet, or access by logging into a website.
- Chances are, you’re regularly using digital products throughout the day, whether you’re aware of it or not. Here are some commonly encountered examples:
- E-books, images, movies, and videos, whether purchased individually through platforms like Shopify or accessed through subscription services like Netflix. In tax terminology, these products typically fall under the category known as “Audio, visual, or audio-visual products.”
- Downloadable and streaming music, whether buying individual tracks or utilizing platforms such as SoundCloud or Spotify. These products also belong to the audio category.
- Cloud-based software and services provided as a service, including Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).
- Websites, web hosting services, and internet service providers.
- Online advertising and affiliate marketing. Revenue generated from these services may be subject to taxation under digital tax regulations.
Note: You may also encounter terms like “digital services,” “e-goods,” or “e-services,” all of which refer to the same concept.
GST for Digital Businesses Canada
The GST/HST for digital businesses Canada, applicable to nearly all goods and services sold within the country. Specific regulations govern the taxation of digital products, requiring careful adherence for tax compliance.
When selling digital products to Canadian customers, you’re required to apply the 5% GST rate. However, the process is more intricate in practice due to the presence of local taxes in most Canadian provinces, each handled differently.
1. The Combined Total
In five provinces, both the federal and provincial taxes are combined into a single tax known as the Harmonized Sales Tax (HST). This integrated tax system, which encompasses both GST and provincial sales tax, is outlined in this guide for clarity and understanding.
2. The Separate Add-On
The tax applied at the provincial level is known as the Provincial Sales Tax (PST), except in Manitoba, where it’s called the Retail Sales Tax, and in Québec, where it’s referred to as the Québec Sales Tax (QST). This provincial tax may be added on top of the federal-level GST discussed in this guide. Keep in mind that it requires separate registration and filing procedures.
Registering For GST/HST for digital businesses Canada
Yes, there is a sales registration threshold in Canada. Remote sellers are subject to an annual sales registration threshold of $30,000 Canadian dollars (CAD).
What does this threshold entail? It refers to the total sales made within the country over any 12-month period. This can be calculated based on sales from the previous twelve months or projected sales for the upcoming twelve months—essentially, any rolling year-long period, whether past or future.
If your total sales in Canada remain below $30,000 CAD, you are not required to comply with GST/HST regulations. However, once your sales exceed this threshold, you must register for GST/HST for digital businesses Canada and adhere to all Canadian tax regulations regarding tax rates, collection, invoicing, and filing returns.
The Registration Process
It appears that registering for tax in Canada is indeed a requisite. Simply adhere to the instructions provided by the Canadian tax authority on how to register for Canadian GST/HST.
Upon successful completion of the registration process, you will be issued a GST/HST registration number. This unique identifier serves as your business’s formal recognition within the Canadian tax system. It enables meticulous tracking of various aspects, including the taxes paid, tax credits received, and the taxes charged to customers.
Is there a requirement for a local tax representative?
No, you are not obligated to have a representative to manage your taxes in Canada. While some foreign business owners may opt to hire a tax representative for added reassurance, it is not a requirement. Sales tax regulations in Canada can be complex and daunting, particularly when dealing with a foreign language, so it’s understandable why some may consider this option.
However, with the Canadian tax portal accessible online, you have the capability to handle these foreign tax obligations independently. Ultimately, the decision rests with you.
GST/HST Collection Procedures in Canada
Once your business is registered for taxes, it is imperative to apply the correct tax rate to every transaction involving Canadian residents.
In the case of transactions with fellow businesses that possess a valid GST/HST number, the collection of tax is unnecessary. These buyers will manage the tax obligation through Canada’s reverse-charge mechanism.
Currently, the following tax rates apply to cross-border sales of digital goods:
- 5% GST in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon.
- 13% HST in Ontario.
- 15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
GST/HST Invoices in Canada
To ensure compliance with tax regulations, it is essential to include the following details on invoices issued to customers in Canada:
1. Your business name and address
2. Your business GST/HST registration number
3. Date of the invoice
4. Sequential numbering of invoices
5. Description of the goods or services provided
6. Applicable GST/HST rate for each item
7. Total amount post-tax inclusion
Note: In certain provinces, it may be necessary to additionally provide your PST or QST number.
Filing GST/HST Returns In Canada
Filing tax returns and remitting payments are integral aspects of maintaining compliance. In Canada, foreign businesses are required to submit tax returns on a quarterly basis. It is imperative to file and remit payments within one month following the conclusion of each reporting period.
Bottomline
Navigating the complexities of GST/HST for digital businesses Canada is essential for digital businesses operating in Canada.
By understanding and adhering to the guidelines outlined in this comprehensive guide, businesses can ensure compliance with tax laws, facilitate seamless transactions, and mitigate potential risks associated with non-compliance.
FAQs
Is there HST on Google ads?
As of July 1st, 2021, GST/HST tax applied to all Google Ads customers with billing addresses in Canada who had not added a GST/HST registration number to their payments profiles. No taxes were collected from business customers who provided a GST/HST registration number.
Is there tax on digital products in Canada?
GST/HST was the federal consumption tax throughout Canada, levied on almost everything sold in the country. There were specific rules around digital products, which you had to follow closely to stay tax compliant. If you sold digital products to a customer in Canada, you had to charge the 5% GST rate.
Is there GST on digital economy in Canada?
As of July 1, 2021, digital economy businesses, including digital platform operators, potentially had goods and services tax/harmonized sales tax (GST/HST) obligations under three measures that were announced in the Fall Economic Statement 2020 by the Government of Canada and revised as announced on April 19, 2021.
Is GST required for digital products?
Yes, in many jurisdictions, including Canada, GST (Goods and Services Tax) or similar consumption taxes are required for digital products and services.
What is the income tax on digital goods?
Digital products and services in Canada were subject to the federal Goods and Services Tax (GST) at a rate of 5%, requiring sellers of items such as ebooks, online courses, software, and music to charge and remit GST to customers within the country.