Did you know? e-commerce retail sales in Canada have experienced significant growth since 2017. Commencing at $28.59 billion, the figures have surged to $62.12 billion in 2023, with a forecast projecting a substantial increase to $94.14 billion by 2027, according to Statista.
While it’s great news for those venturing into online retail, amidst your various responsibilities, it is crucial to address the matter of taxes, specifically Shopify Canada taxes. This aspect holds considerable significance.
Tax Requirements for eCommerce Businesses in Canada
Navigating the tax landscape for your eCommerce business in Canada can be intricate. The type and extent of taxes you encounter depend on various factors, such as your business structure, location, and the nature of your products or services.
To begin with, there are federal taxes that generally apply to businesses throughout Canada. These encompass income tax, GST/HST (Goods and Services Tax/Harmonized Sales Tax), payroll tax, and any duties associated with importing/exporting.
Additionally, each province imposes its own set of taxes for e-commerce in Canada, introducing another layer of complexity. Within this framework, you may come across Canada’s e-commerce sales tax (PST, HST, or QST) and provincial corporate income tax.
Furthermore, municipal taxes should not be overlooked. Certain regions may include business license fees or property tax as part of the tax considerations for your eCommerce enterprise.
Understanding Canadian Sales Tax
For businesses engaged in selling to Canadian customers, obtaining comprehensive information about Canada’s e-commerce sales tax, commonly referred to as GST/HST, is of significant importance. This tax is set at approximately 5% and applies to the majority of goods and services in Canada. Once your store achieves an annual income of $30,000 CAD or more, it becomes imperative to register for a GST/HST number.
In specific provinces such as British Columbia, Saskatchewan, Manitoba, and Quebec, an additional consideration involves the collection of provincial sales taxes (PST). The rates for PST can vary between 6% to 10%, contingent on the location of your sales.
For non-Canadian business owners contemplating expansion, there exists a possibility that registration for a Non-Resident Importer (NRI) account with the Canada Border Services Agency (CBSA) is required. This step ensures adherence to regulations and the accurate payment of duties and taxes for e-commerce transactions in Canada related to your products.
International Taxation Methods
In contrast to direct taxes, which individuals pay directly to the government (such as income tax), indirect taxes are levied throughout the supply chain and remitted to the government. However, they are typically embedded in the purchase price of a good or service. Among indirect taxes, two common types are known as consumption taxes:
VAT
If your business operates in a European Union (EU) member country and intends to engage in cross-border sales within the EU, it is imperative to register with the local jurisdiction to obtain a value-added tax (VAT) number.
This VAT number becomes essential for charging VAT to customers within the EU, contingent on their respective locations. Moreover, businesses can establish tax overrides for products subject to special tax rates as part of this process.
GST
Goods and Services Tax (GST) in Shopify is applicable for businesses that are required to collect and remit GST on the sale of goods and services in regions where GST is applicable. In the context of Shopify, GST is typically relevant for businesses operating in countries or regions that impose this tax, such as Canada and Australia.
For example:
- India: It serves as a comprehensive tax reform, replacing various other taxes and levies previously administered by both the central and state governments. Some of the taxes and levies that GST replaces, which is an 18% tax includes Value Added Tax (VAT), Central Sales Tax, Excise Duty, and Commercial Tax, among others.
- Australia: Australian businesses may need to charge the Goods and Services Tax (GST) on eligible transactions. The GST is a 10% tax on most goods and services that are sold or consumed in Australia. As a Shopify store owner, you need to register for GST if your business has an annual turnover of $75,000 AUD or more.
How To Charge Taxes on Shopify
To set up Shopify taxes in Canada, follow these steps:
- Go to “Settings” in your Shopify admin panel.
- Navigate to “Taxes” and select “Tax Rates.”
- Click on “Add tax rate” to create a new tax rate.
- Enter the necessary details, including the name of the tax rate, percentage, and tax number, if applicable.
- Save your changes.
The Different Types of Taxes
Income Tax
This aspect impacts both businesses and individuals in accordance with their taxable income. The applicable rates are contingent upon the province or territory in which one resides. A thorough examination of the details encompassed in the Income Tax Act, along with specific rates for each province, can be found on the Government of Canada website.
GST/HST
The Goods and Services Tax (GST), a federal tax that significantly influences the pricing of most goods and services sold in Canada. If your business falls within the purview of the GST, it is imperative to apply this tax to all taxable goods and services.
In certain locations, there is an additional consideration for the Harmonized Sales Tax (HST). This tax functions as a combination of GST and provincial sales tax (PST), applicable in provinces that have aligned their tax structures with the federal GST. For comprehensive information on the GST/HST and guidance on compliance, the Government of Canada website serves as a valuable resource.
Import/Export Duties
For businesses importing goods into Canada, be prepared for the potential imposition of import duties. These duties typically represent a percentage of the value of your goods and are subject to variation based on the nature of the items being shipped. It is essential to factor in these import duties as part of the overall cost considerations associated with bringing your products into Canada.
Sales Tax (PST, HST, or QST)
In the majority of Canadian provinces, each holds its distinct provincial sales tax (PST) regulations applicable to goods and services. For businesses falling under the PST category, it is necessary to levy this tax on all taxable goods and services within the respective province.
Notably, three provinces—New Brunswick, Newfoundland and Labrador, and Nova Scotia—have opted to collaborate with the federal GST, forming the Harmonized Sales Tax (HST). Businesses in these provinces should apply HST instead of GST and PST.
Quebec, on the other hand, follows its unique approach with the Quebec Sales Tax (QST). Establishments operating in Quebec are required to adhere to QST instead of GST. For a comprehensive understanding of the intricacies, including tax rates, associated with PST, HST, and QST, the Government of Canada website provides detailed information.
Corporate Income Tax
For incorporated eCommerce businesses, brace yourself for corporate income tax obligations. The federal rate stands at a rate of 15%, while the provincial rates exhibit variability based on the location of your business.
Payroll Tax
If you operate as a team, payroll tax becomes a pertinent consideration. It entails withholding various components from your employees’ paychecks, including income tax, Employment Insurance (EI) premiums, and Canada Pension Plan (CPP) contributions.
As the owner, you also bear the responsibility of making contributions for EI and CPP. For a detailed understanding of payroll deductions and guidance on managing them, the Government of Canada website provides comprehensive information.
Tips for Staying Compliant with Tax Laws
Now that we’ve covered the nitty-gritty of taxes for your Canada’s e-commerce sales tax, let’s dive into some tips to keep things smooth and compliant with the tax laws.
- Keep Good Records
View this as a strategic measure for effective tax management. Ensuring meticulous control over your sales, expenses, inventory, and payroll records is akin to possessing a well-organized map that guides you through the complexities of the tax season. The precision of your records not only facilitates the filing of tax returns but also establishes a foundation for efficiently addressing any potential challenges that may arise in the taxation domain.
- Register for the Right Taxes
Get on the tax radar by registering for all applicable e-commerce taxes in Canada, including income tax, GST/HST, and PST, if applicable. The registration process is conveniently accessible online through the Canada Revenue Agency website, allowing you to efficiently hop on the registration train and fulfill your tax obligations.
- Charge the Right Tax Rates
When conducting sales, ensure that you apply the correct tax rate, effectively speaking the language of your province. The applicable rate depends on the nature of your products or services and the specific location of the sale.
- Remit Taxes on Time
Paying your taxes on time is like meeting a deadline – it’s crucial. Taxes usually do their rounds quarterly or monthly, so make sure you’re on top of it. Miss a deadline, and you might be dealing with interest and penalties.
- File Your Tax Returns
If your business falls within the GST/HST category, filing returns is imperative, whether on a quarterly or annual basis. This serves as your report card on the taxes collected and is the platform through which any outstanding dues with the government are settled. The filing process is conducted online through the Canada Revenue Agency website.
- Connect with an Accounting and Tax Firm
It is recommended that you consider enlisting the services of an accounting and tax firm. These professionals possess expertise in navigating the complexities of taxation, offering guidance, answering inquiries, and ensuring that your eCommerce business complies with tax regulations seamlessly.
Recommended Softwares
- A2X for Shopify
A2X for Shopify serves as a valuable tool for streamlining accounting processes by seamlessly importing Shopify payouts and sales data into users’ accounting systems. One of its key advantages lies in its precise reconciliation of Shopify Payments, encompassing all associated fees.
The tool’s automated data import functionality significantly reduces the need for manual entry, thereby minimizing the potential for errors in financial records.
- Synder for Shopify
Synder stands out as a robust Shopify app designed to streamline business operations by facilitating the automatic synchronization of diverse data elements from a Shopify store to QuickBooks or Xero.
This comprehensive synchronization encompasses sales, fees, inventory, taxes, discounts, gift cards, shipping details, items, and customer information. By automating this process, Synder significantly simplifies the reconciliation workflow, offering the added advantage of unlimited historical imports.
- MyWorks Sync for Shopify
MyWorks offers a unique integration between Shopify and QuickBooks Online, distinguishing itself by being exclusively managed directly from the backend of the Shopify store.
This streamlined approach eliminates the need for additional platforms to log into or keep track of, allowing users to effortlessly view and manage all integration settings directly from their store’s admin view.
The Bottom Line
Ensuring accurate assessment and timely remittance of Shopify Canada taxes is crucial to avoid the pitfalls of interest and penalties. A valuable strategy involves maintaining meticulous records and proficiently managing tax returns, serving as secret weapons to stay in compliance with tax laws.
Frequently Asked Questions
1. How is sales tax calculated in Canada?
In Canada, sales tax is calculated based on the type and location of the goods or services being sold. The two main types of sales tax are the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). The rate varies by province, and some provinces combine their provincial sales tax with the GST to create the HST. To calculate the sales tax, you apply the applicable rate to the sale amount. It’s crucial to be aware of the specific tax rates in the province where the sale occurs.
2. How much tax do you pay on an e-commerce business?
To pay taxes for my e-commerce depends on various factors, including the business’s structure, location, and the products or services it sells. E-commerce businesses may be subject to federal taxes like income tax, GST/HST, and potentially provincial sales tax (PST), depending on the province. The total tax liability is determined by factors such as the business’s income, eligible deductions, and applicable tax rates.
3. Do I charge sales tax on online sales in Canada?
Yes, in most cases, you are required to charge sales tax on online sales in Canada. The specific tax (GST, HST, or PST) and the applicable rate depending on the province or territory where the buyer is located. If your business is within a certain threshold in sales revenue, you may be required to register for and charge GST/HST, even if you are not physically located in the buyer’s province.
4. Do online businesses pay taxes in Canada?
Yes, online businesses in Canada are subject to various taxes. This includes income tax on the business’s taxable income, GST/HST on sales, and potentially other taxes depending on the business’s structure and location. The tax obligations may vary, and online businesses must stay informed about the relevant tax laws, rates, and filing requirements. Seeking guidance from tax professionals or accounting firms can help ensure compliance with tax regulations.