This is a guest post written by Brian McGill, Founder at KB Financial Solutions.
As a result of the current pandemic, more and more consumers continue to shop online causing online sellers to flock to global marketplaces and expand their business. In Canada for example, eCommerce sales experienced a staggering 110% increase in May 2020 compared to the same time period in 2019. As numbers continues to surge, many online retailers are finding Canadian customers an attractive target for business growth.
So, if you want to start selling online to Canada, it’s important that you’re fully aware of the tax obligations that come with selling to the Canadian market.
Here’s everything you need to know about sales tax in Canada when selling online. Let’s dive in…
How do Sales Taxes Work in Canada?
Sales taxes are charged on almost all products and services in Canada except for “necessities” such as food or medical supplies. Canada charges both Federal and Provincial sales taxes. If you’re selling in Canada and your worldwide sales are over $30,000 annually, you must collect sales tax from your customers. Your customer pays the sales tax but you have to collect it, file a return and send the funds to the government.
Is There More Than One Sales Tax Charged?
Yes. Before 2010 9 of the 10 Provinces and the Federal government all charged sales taxes separately. This meant that you had to file 10 sales tax returns! The good news now is that 5 Provinces (Newfoundland, Nova Scotia, Prince Edward Island, New Brunswick and Ontario) have “harmonized” their sales taxes with the Federal government so that just one sales tax return is required for those 6 jurisdictions. This combined Federal and Provincial sales tax is known as the “HST” (Harmonized Sales Tax). The Federal sales tax is known as the “GST” (Goods and Services Tax).
Unfortunately, the other four Provinces (British Columbia, Saskatchewan, Manitoba and Quebec) collect and report sales taxes separately. So, in addition to registering Federally (which covers the Feds and the 5 Provinces mentioned above), you’ll also need to register for each of the other four “non-harmonized” Provinces. Only the province of Alberta does not have a provincial sales tax, however, Federal sales tax is charged on sales in Alberta.
How much Sales Tax is Charged in Canada?
It varies by location. The Maritime provinces (Newfoundland, Nova Scotia, New Brunswick and Prince Edward Island) charge HST of 15%. In Ontario the HST rate is 13%. The remaining five Provinces, except Alberta, charge 5% Federal sales tax and their own Provincial sales tax (PST): British Columbia’s is 7%; Saskatchewan 6%; Manitoba 7% and Quebec 9.975%. As mentioned before Alberta only charges Federal sales tax.
How Often Do I Have To File Sales Tax Returns in Canada?
This depends on 1) the province and 2) your sales volume. In most cases, you’ll file annually on the calendar year. Your Federal return is annual if your yearly sales are less than $1.5 million CDN. In Manitoba however, the annual threshold is $75,000. In Saskatchewan, it’s $60,000. The threshold is different for each of the “non-harmonized” Provinces. Quebec requires quarterly filing regardless of sales volume for non-residents. Also if your Federal or Quebec annual tax remittance is over $3,000 you have to make quarterly installments in addition to filing your annual return.
What is the Deadline for Filing Sales Tax Returns in Canada?
Again It varies by location but it is usually one to three months after your reporting period. For example, if your return is annual, you must file and pay by no later than 90 days after the end of the reporting period. If your return is monthly or quarterly then you must file and pay by the end of the following month.
Do I Have to Pay Sales Tax on Any of My Company’s Canadian Expenses?
Yes you do but the good news is, if you are sales tax registered, any Federal sales tax that you’ve paid is refundable. You’ll pay Federal sales tax on fulfilment fees paid to the ecommerce platform you sell on. This is refundable though if you’re registered. You’ll also pay 5% Federal sales tax on all goods imported into Canada…this tax is also refundable…if you are registered.
What Happens if I Don’t Register and Collect Sales Taxes in Canada?
Federal and Provincial tax authorities have the authority to subpoena records from your e-commerce platform to find out if you’ve been complying with the tax laws. With the tremendous growth of e-commerce sales in Canada and the reduction in tax revenues from locally owned brick and mortar stores the Federal and Provincial governments are aggressively looking at ways to recover that revenue from ecommerce non-resident sellers. If you fail to collect and pay sales taxes you could be audited and assessed for any taxes that you should have collected. Tax evasion can result in criminal charges and/or substantial interest penalties and fines. Your selling privileges on your e-commerce platform may be suspended or cancelled.
Do I Have to Pay Canadian Income Taxes?
No, as long as you don’t have what the Federal government calls a “permanent establishment” in Canada. A permanent establishment is defined as owning business real estate in Canada or having employees here.
What Services Do We Offer Amazon Resellers Selling in Canada?
We assist non-residents with sales Canadian tax compliance including registration, filing and payment processing. Our staff have over 50 years combined experience in bookkeeping and tax preparation. Our President and Founder, Brian McGill, spent 15 years with the Canada Revenue Agency (the Canadian equivalent of the IRS) as an income and sales tax auditor. If you want a list of our fees, references, or any further information please contact:
Brian McGill, KB Financial Solutions
3127 Quail Drive
Ottawa Ontario K1T 1T9
613-903-4255; Toll free 855-903-4255
Before forming KB Financial Solutions in 2017, Brian McGill enjoyed a diverse career in banking and credit unions, as the senior financial executive in two startups, and as an income and sales tax auditor for Canada’s equivalent to the Internal Revenue Service in the US. Brian has also developed an in-demand expertise in helping international online businesses (such as Amazon Resellers) set up, manage and report their sales taxes in Canada.