- August 11, 2023
- Posted by: admin_touchstoneaccountancy
- Category: Uncategorized
JANUARY 17,2020. 4 MINUTE READ
How to navigate Canadian Sales Tax as an e-commerce entrepreneur
TouchStone
As one of the world’s largest internet users, Canadians have
adopted electronic commerce (e-commerce) with open arms during a severe
disruption in conventional retails channels. Canada’s cross-border
ecommerce sales make up nearly a third of retail ecommerce overall. As
such, Canada’s ecommerce market gives online traders the perfect
opportunity to grow their international sales.
On the surface,
Canadian Revenue seems much simpler than the IRS seeing as there are no
forms to fill, whether you’re a Canadian Amazon Seller or a non-resident
selling on Amazon Canada. However, like everything, it does have its
own set of hurdles. You are not exempt from taxes; you’re still liable
for destination duties, custom clearance fees, taxes and more. Whether
its a foreign company, an organization or simply an individual that
sells goods and/or services to clients and customers in Canada, they all
have to determine whether their business there makes them liable to
register for the Goods and Services Tax / Harmonized Sales Tax
(GST/HST).
What is the Canadian Sales Tax?
Canada only has provincial and national sales tax, unlike the
U.S where you have to take into account the different tax rates in
every State.
The two main types of sales taxes in Canada are:
- Federal
Sales Tax: known as Goods and Services Tax (GST) or Harmonized Sales
Tax (HST). GST and HST are administered jointly. Whether you are liable
for GST or HST depends upon the particular province or territory. - Provincial
Sales Tax: known as Provincial Sales Tax (PST), Quebec sales tax (QST),
or Retail Sales Tax (RST), depending on the province. Not all of the
provinces have a provincial sales tax regime. Whether you are liable for
PST, RST, or QST depends on the particular province.
What is the threshold for non-resident GST/HST registation?
GST/HST is a value-added sales tax listed under the Excise
Tax Act (ETA). The ETA states that all non-resident individuals who
provides a taxable supply in Canada in the process of running business
activities in Canada must register themselves for GST/HST purposes. The
exception to this are small suppliers (i.e. those whose worldwide
taxable sales, including those of their associates, do not go over CAD
$30,000. It must be noted that this is a “rolling” period, not the usual
calendar year).GST/HST is required even if you are a non-resident
without a permament address who is running a business that makes a
taxable supply in Canada.
One important note: Some provinces
require provincial sales tax to be collected without exceptions (i.e.
even by small sellers). You can avoid this by simply refusing to take
orders from those provinces.
Furthermore, just like in the U.S.,
there are some goods and services that are exempt from Canadian sales
tax; they’re called “zero-rated” items. You can find the list of
zero-rated goods here. Businesses that exclusively sell exempt supplies
typically don’t have to register for GST or HST.
“Generally speaking, sales tax in Canada does seem somewhat
easier but it is important to note that there are several other things
to keep in mind when selling there, such as customs and labeling
requirements.”
To find out more about the different kinds of rates, rules, and regulations, visit the Canada Revenue Agency website.
What is Canadian Sales Tax Nexus?
“People think the US is confusing when it comes to sales tax nexus!”
Canada’s
definition of nexus – ‘carrying on business’ – is not judged by
physical presence or a permanent address, but rather by a list of 12
defining factors.
“The meaning of the term “”carrying out business””
is not specifically defined. Instead, it requires you to analyse several
factors. The CRA stated its administrative position on the issue in a
policy statement published in 2005. The CRA stated that the importance
of each of the factors may differ depending upon the situational
circumstances and nature of the good the business is supplying (e.g.
goods, services, intangible personal property, etc).”
The CRA further
elaborates that a non-resident individual must have a large enough
presence in Canada to be consiered as “carrying on business” in Canada.
In cases where only a few of the factors apply, their weightage and
impact must be assessed.
The factors used to determine whether a non-resident person is carrying on business in Canada for GST/HST purposes include:
the place where the non-resident’s agents or employees are located;
the place where goods/services are being delivered to;
the place of payment is being received from;
the place where either purchases are made or assets are acquired;
the place from which transactions are solicited;
the place where the assets or an inventory of goods is located;
the place where the business contracts are being made;
the location of a bank account;
the place where the non-resident’s name and business are listed in a directory;
the location of a branch, office or any such permanent address;
the place where the service(s) is performed; and
the place of manufacture or production of goods/services.
The Obligations of a Registrant
Non-residents who register for GST/HST purposes are liable to the following obligations:
They must charge and collect applicable GST/HST on taxable supplies made within Canada.
They
must file GST/HST returns periodically with the CRA. Reporting periods
can be annual, quarterly or monthly, depending upon the level of sales
in Canada.
They must state to the CRA the net amount of tax, being
the total GST/HST on sales less total GST/HST payable during that
particular reporting period that could be claimed as refunds.
If a
registrant is an annual filer, they may also be required to make
quarterly installments beginning in the second year of registration.
Registrants must fulfill the information requirements on sales invoices.
They
must update their accounting systems to record the GST/HST collected,
collectible and/or paid or payable, as the case may be.
They must maintain their books and records in accordance with the CRA’s policy.
Voluntary registration
If GST/HST registration is not required, non-residents of
Canada may become registered on a voluntary basis. The benefit of
registration is that registrants generally are entitled to claim refunds
of GST/HST paid on costs such as warehousing, shipping and the
importation of goods into Canada. Hence, GST/HST paid does not represent
the true cost.
What is Federal and Provincial Sales Tax Rate?
| Slaes Tax Type | Provinces/Territories |
|---|---|
|
GST Only |
Alberta (5% GST)Nunavut (5% GST)Northwest Territories (5% GST)Yukon (5% GST)
|
|
GST and PST/RST/QST |
British Columbia (5% GST + 7% PST)Manitoba (5% GST + 7% RST)Quebec (5% GST + 9.975% QST)Saskatchewan (5% GST + 6% PST)
|
|
HST Only |
Ontario (13%)New Brunswick (15%)Newfoundland (15%)Nova Scotia (15%)Prince Edward Island (15%)
|
Tariff and duty rates system
Most imported goods are liable for GST at a rate of 5%. Where
duty applies, it is added to the good’s value and the GST applies on
the duty-paid shipment value (i.e 5% GST x (value of the goods + the
duty paid)). It is your duty to ensure you comply with all the Canadian
customs, importation, and taxations laws and regulations, which includes
the duty applicable and tax requirements.
Federal and Provincial Sales Tax registration
In order to collect federal sales tax (GST/HST) on sales in
Canada, you are required to register for GST/HST with the Canada Revenue
Agency. This registration is besides the non-resident importer
registration you have to complete as well. Your annual sales in Canada
determine how frequently you remit sales to the CRA. Low volume Amazon
Canada sellers usually fall under the category of yearly filers (i.e.
once a year they must report the amount of sales tax collected from
Canadian customers).
You can also register with the CRA or provincial
tax authorities. If ypu are an importer, once your importer number is
issues, you will be given a questionnaire by the Canada Revenue Agency
to complete and return back to them. Your GST/HST registration will then
be done in approximately 6-8 weeks from when the form was submitted.
You
will be required to register separately for Provincial sales tax in
non-HST provinces of Canada if you are liable to collect tax for sales
in those provinces.
Taking Things One Step Farther
It is crucial to understand how Canadian sales tax works,
whether you are making sales in Canada or simply considering the idea of
expanding your companiy’s activities to Canada. Failure to do so would
leave your business vulnerable to significant financial risks. You would
also need to have a solid understanding of your possible tax collection
liabilities in addition to tax recovery avenues that could be available
for UK organizations carrying out business in Canada.
If all of
these complications in Canadian Sales Tax for e-commerce sound more
difficult than you had initially thought, we at Touchstone would be
happy to help you out. Although it may look daunting, the pros of
expanding internationally greatly outnumber the cons. Touchstone can
help you track liabilities in Canada, UK, EU & USA through our
expert services and accounting partners like Xero and Link My Books. If
you want to expand internationally, contact us today.