Canadian Tax Implications for Foreign Sellers on Amazon Canada

Editor’s Note: This is a guest post written by Ofer Tamir, CPA in Canadian and International Accounting & Tax Advisory services. 

Canada’s online market has grown in recent years, has become an attractive destination for many foreign sellers, and continues to be on the rise.

Under the Canadian domestic tax law, a non-resident who carries a business in Canada is subject to taxes in Canada. Now, while shipping products to Canadian customers is not by itself considered to be carrying a business in Canada, foreign Amazon sellers who are importing products to Canada using FBA or third-party fulfillment centers, advertise and selling in Canada, are considered as carrying a business in Canada and are subject to taxes.

However, many foreign sellers are not aware of their tax obligations in Canada mainly since until now, the Canadian tax authority did not do anything to enforce it. As per the recent “Canada Fall Economic Statement” published on November 30, 2020, though, this may start to change.

In this article, I hope to provide you with a summary of the Canadian tax provisions in connection with foreign sellers on amazon Canada and the registration and reporting requirements. Let’s get started.

Federal and Provincial Sales Taxes

It should be noted that Amazon sellers that reach $30,000 of sales in Canada during a 12 month period must open a sales tax account with the Canada Revenue Agency (“CRA”), collect sales taxes from customers (done by Amazon), file sales tax reports, and remit the taxes to the CRA.

Sellers can, however, register before reaching the $30,000 threshold, which will allow them to claim back the sales tax paid on expenses, including the 5% charged when the products are imported to Canada. At the same time, considerations should be given to the impact an early registration would have on sales.

In most provinces, there is one harmonized sales tax covering both the Federal and Provincial sales taxes (HST). In these provinces, the CRA manages HST, collects it from businesses, and gives a portion of it to the province. For example, in Ontario, the HST is 13% which includes both the federal and provincial taxes.

Businesses with total annual sales of up to $1.5M are required to file an annual GST/HST with the CRA. (quarterly advance payment may be required).

Quebec, however, has a separate, though somewhat similar system, where registration is required when the revenues generated in Quebec reach $30,000 in 12 months (here the QST is 14.975%; 5% GST is remitted to the CRA and 9.975% QST to Quebec).

As few provinces, though, have harmonized with the federal government with separate sales tax systems (Provincial Sales Tax or PST), there are different requirements for registration in these provinces and, for the most part, foreign sellers on Amazon do not have to register.

Finally, it is also important to note that although Amazon is the one charging and collecting the sales taxes from the customers, it is the seller’s responsibility to register, file reports, and remit the sales tax collected to the CRA.

Income Tax

Under domestic law, those doing business in Canada are subject to income tax in Canada. The majority of the tax treaties Canada has with other countries provide a level of relief where businesses are subject to income tax in Canada only if the business is carried through a Permanent Establishment (“PR”) in Canada.

Amazon sellers will be pleased to hear that using FBA in Canada by itself is not considered a PE in Canada and as such, Amazon sellers are not considered to have a PE in Canada and are therefore not subject to income tax in Canada.

To claim the treaty exemption, though, businesses are required to file income tax returns (treaty-based return) in Canada. The return contains Information Return which is subject to a late filing penalty of $25/day up to a maximum of $2,500 (100 days).

Importing to Canada

A seller who ships products to Amazon warehouses or similar platforms in Canada is considered to be the importer on record and therefore needs to register as an importer. The registration is done in the same way as the registration for income tax and sales tax with the same business number but with a different extension.

Duty and Taxes

Import products to Canada are subject to 5% GST tax and duty based on the type of product and the source country. It is the seller’s responsibility, even when done through a third party, to pay this tax.

Canada Fall Economic Statement – 2020

On November 30, 2020, Canada published its Economic Statement that includes changes to the requirements from Amazon and companies with similar platforms that operate fulfillment centers.

In this statement it mentions that in cases of unregistered sellers that reach the $30,000 threshold, Amazon and similar platforms will be required to register as if Amazon is the seller, charge sales tax, and remit it to the CRA. Also, Amazon will be required to maintain records of sellers’ information, including inventory, sales, etc. The new law, when passed, will be effective July 1, 2021.

As a result, assuming Amazon will not “accept” the new responsibilities, it is likely that they will pass the responsibility on to the seller by forcing them to register and maintain their Amazon accounts, as is done already in the UK and Germany, for example.

For more information on these regulations, please read the Canada Fall Economic Statement – Sales Tax Measures.

Ofer Tamir, CPA, CA has over 20 years of experience in Canadian and International Accounting and Tax Advisory services, including: eCommerce, tax treaties, inbound and outbound investments, mergers and acquisitions, grants, and tax credits opportunities. Ofer Tamir graduated with distinction from Concordia University, Montreal, Canada, winning the Ross Medal for Accountancy. He remains dedicated to his clients’ success and applies his in-depth understanding of cross-border taxation to develop solutions that help them achieve their goals while reducing concerns about remaining in compliance. Please contact Ofer Tamir to learn more on Canadian tax implications: otamir66@gmail.com