Whether you’re just starting out or have been in business for a while, it’s important to understand the tax requirements for your eCommerce business. Taxes can be complex, but we’re here to help make it as easy as possible to understand what you need to do to stay compliant.
In this guide, we’ll cover:
- An overview of tax requirements for eCommerce businesses in Canada
- The different types of taxes that may apply to your business
- How to collect and remit taxes on your online sales
- Tips for staying organized and keeping on top of your tax obligations
We hope this guide will help take some of the complexity out of tax for eCommerce businesses in Canada. Let’s get started!
An overview of tax requirements for eCommerce businesses in Canada
The tax landscape for eCommerce businesses in Canada can be complex. Several different taxes may apply to your business, depending on factors like your business structure, location, and the products or services you sell.
The three main types of taxes that may apply to your eCommerce business are:
Federal taxes: These are taxes imposed by the federal government and include income tax, GST/HST, and import/export duties.
Provincial taxes: Each province has its own set of provincial taxes that may apply to your eCommerce business, including sales tax (PST, HST, or QST), corporate income tax, and payroll tax.
Municipal taxes: In some cases, you may also be required to pay municipal taxes, such as business license fees or property tax.
It’s important to note that tax laws and rates can change at any time, so it’s always a good idea to stay up-to-date on the latest changes. You can find more information on the Government of Canada website and your provincial government website.
The different types of taxes that may apply to your business
As we mentioned, several different taxes may apply to your eCommerce business in Canada. Let’s take a closer look at the main types of taxes you may need to pay.
Income tax is a tax imposed on businesses and individuals on their taxable income. The tax rates vary depending on the province or territory of your business. You can find more information on the Income Tax Act and the tax rates for each province and territory on the Government of Canada website.
The Goods and Services Tax (GST) is a federal tax imposed on most goods and services sold in Canada. If you are registered for GST, you must charge GST on all taxable supplies of goods and services made in Canada.
Depending on your province or territory, you may also be required to charge the Harmonized Sales Tax (HST). The HST is a combination of the GST and provincial sales tax (PST) and is applied in provinces that have harmonized their tax system with the federal GST.
You can find more information on the GST/HST and how to register for it on the Government of Canada website.
If you sell products imported into Canada, you may be required to pay import duties. Import duties are calculated as a percentage of the value of the goods being imported, and they vary depending on the product type.
You can find more information on import duties and how to calculate them on the Government of Canada website.
Sales tax (PST, HST, or QST)
Most provinces in Canada impose a provincial sales tax (PST) on the sale of goods and services. If you are registered for PST, you must charge PST on all taxable supplies of goods and services made in the province.
The three provinces that have harmonized their tax system with the federal GST are:
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
If your business is located in one of these provinces, you will charge the Harmonized Sales Tax (HST) instead of GST and PST. The HST is a combination of the GST and provincial sales tax.
The province of Quebec has its own sales tax, called the Quebec Sales Tax (QST). If your business is located in Quebec, you will charge QST instead of GST.
You can find more information on PST, HST, and QST, including the tax rates for each province, on the Government of Canada website.
Corporate income tax
If your eCommerce business is incorporated, you will be required to pay corporate income tax on your business’s taxable income. The federal corporate income tax rate is 15%, and the provincial corporate income tax rates vary depending on the province in which your business is located. You can find more information on corporate income tax and the tax rates for each province on the Government of Canada website.
If you have employees, you will be required to withhold payroll deductions from their paycheques and remit them to the government. These deductions include income tax, Employment Insurance (EI) premiums, and Canada Pension Plan (CPP) contributions. As an employer, you will also be required to make EI and CPP contributions on your employees’ behalf.
You can find more information on payroll deductions and how to remit them on the Government of Canada website.
Tips for staying compliant with tax laws
Now that we’ve gone over the different types of taxes that may apply to your eCommerce business in Canada, let’s take a look at some tips for staying compliant with tax laws.
1. Keep good records
One of the most important things you can do to stay compliant with tax laws is keeping good records. This includes keeping track of your sales, expenses, inventory, and payroll. Good record keeping will help you file accurate tax returns and make it easier to resolve any tax issues that may arise.
2. Register for the appropriate taxes
Make sure you register for all the taxes that apply to your business, including income tax, GST/HST, and PST (if applicable). You can register for taxes online through the Canada Revenue Agency website.
3. Charge the correct tax rates
When you make a sale, make sure you charge the correct tax rate. The tax rate you charge will depend on the type of product or service being sold and the province in which the sale is made. You can find the tax rates for each province on the Government of Canada website.
4. Remit taxes to the government
If you have to remit taxes to the government, make sure you do so on time. Taxes are typically due on a quarterly or monthly basis. You may be subject to interest and penalties if you fail to remit taxes when they are due.
5. File tax returns
If you are eligible for GST/HST, you have to file GST/HST returns quarterly or annually. GST/HST returns are used to report the tax you have collected and remit any tax owing to the government. Also, you can file GST/HST returns online through the Canada Revenue Agency website.
Nonetheless, income tax returns are required to be filed on an annual basis. Your tax return is used to calculate the amount of tax you owe or the amount of refund you are entitled to receive. You can file your income tax return online through the Canada Revenue Agency website.
6. Contact an Accounting and Tax Firm
If you are unsure of your tax obligations or have questions about tax compliance, we recommend contacting an accounting and tax firm. They will be able to provide you with the guidance you need to ensure that your eCommerce business is compliant with tax laws.
The Bottom Line
So, a number of different taxes may apply to your eCommerce business in Canada. They include income tax, GST/HST, and PST (if applicable). It is important to charge the correct tax rates and remit taxes to the government on time. To avoid interest and penalties. Moreover! Good record-keeping and filing accurate tax returns are also key to staying compliant with tax laws. If you have any questions about your tax obligations, we recommend that you contact an accounting and tax firm for guidance.
This article is for informational purposes only and does not constitute tax advice. For tax advice specific to your business, please consult a tax professional.
Sohail Afzal, CPA, CMA, MBA
Sohail Afzal, (CPA, CMA, MBA) is the founder & CEO of GTA Accounting Professional Corporation. He is a highly experienced Chartered Professional Accountant and businessman himself and understands the challenges that many businesses face when it comes to cash flow management. As an experienced business consultant & tax advisor, he is helping companies grow by providing the technical, financial, and contractual information necessary for strategic decision-making.