Ever since the digital space became a new reality, there has been an increase in Canadian e-commerce retail sales.
It rose from $21.975 billion in 2017 to $32.442 billion in 2021. Its sales are expected to cross $40,352 million by 2025.
Millions of online vendors have entered the market. They made their digital businesses available to Canadian customers and people around the world.
Similar to your physical retail stores, e-commerce platforms also demand to comply with the rules and regulations. Among many other concerns, understanding taxation in the e-commerce world may often confuse you.
In this article, we have explained Canadian e-commerce sales taxes. Moreover, we have also discussed some of the processes to make your business Canadian e-commerce sales tax compliant.
Types of Taxes Paid in Canada
The Canadian Tax System is a progressive tax system. This implies that the more you earn, the more taxes you have to pay.
There are four types of Canadian e-commerce sales tax. Each one of them serves to comply with different rules and regulations.
Following are the four types:
- Goods and Services Tax (GST)
- Provincial Sales Tax (PST)
- Harmonized Sales Tax (HST)
- Quebec Sales Tax (QST)
In the coming section of the article, we have explained all four types in detail.
| Province | Type of Taxes Applied | Total Rate of Tax |
|---|---|---|
| Alberta | GST | 5% |
| British Columbia | GST + PST | 12% |
| Manitoba | GST + PST | 12% |
| New Brunswick | HST | 15% |
| Newfoundland and Labrador | HST | 15% |
| Northwest Territories | GST | 5% |
| Nova Scotia | HST | 15% |
| Nunavut | GST | 5% |
| Ontario | HST | 13% |
| Prince Edward Island | HST | 15% |
| Quebec | GST + QST | 14.975% |
| Saskatchewan | GST + PST | 11% |
| Yukon | GST | 5% |
Type 1: GST
GST stands for goods and services tax. It is a type of federal tax that is levied at a 5% rate. It is imposed on the supply of goods and services made in Canada except for the zero-rated one.
You are required to pay tax on all online purchases made. From a seller to a client located anywhere in Canada unless you are a “small supplier”.
If you are a “small supplier”, you are required to collect HST which we have discussed in the coming section of the article.
Provinces Under GST
Following are the provinces where GST is applied:
- Alberta
- British Columbia
- Manitoba
- Northwest Territories
- Nunavut, Saskatchewan
- Quebec
- Yukon
You must collect the GST sales tax if your customer belongs to these regions.
GST Tax Rates
With a 5% tax rate, GST is applicable to the people whose sales fall under the small supplier threshold and are under $30,000. However, the tax rate rises when we include PST or QST.
Type 2: PST
PST stands for Provincial Retail Sales Tax. PST is not a Value Added Tax (VAT). It could be implied on the business’ inputs that are not required for resale. This is why the purchases made by the business on which PST is paid, can not be claimed for credit.
Provinces Under GST
Following are the provinces where the GST is applied
- British Columbia
- Manitoba
- Saskatchewan
PST Tax Rates
The tax rate is different for the provinces. British Columbia and Manitoba have a rate of 7%. Meanwhile, the rate for Saskatchewan is 6%.
To calculate the final sales tax rates, you should add the PST rates and 5% GST.
Type 3: HST
The reason HST stands for Harmonised Sales Tax is that the five provinces fully synchronized their sales tax systems. A single HST includes the 5% GST and the provincial component.
Since both the HST and GST are jointly administered by Canada Revenue Agency (CRA), they are regulated under the same tax rate.
Provinces Under GST
This tax system is utilized by the five provinces which are as follows:
- New Brunswick,
- Newfoundland and Labrador
- Nova Scotia
- Ontario
- Prince Edward Island
HST Tax Rates
The HST varies a lot depending upon the province. Ontario, Newfoundland, Labrador, and New Brunswick have a 14% tax rate. Meanwhile, the tax rate for Nova Scotia and Prince Edward Island is 15% and 15% respectively.
You do not need to calculate the GST and PST tax rates if you are selling from these provinces. All you need to do is to calculate the HST rate.
Type 4: QST
QST stands for Quebec Sales Tax. Similar to GST and HST, it is structured around Value Added Tax. QST is charged on the taxable supplies other than the tax-exempted items which we have discussed in the coming section of the article.
If some of the following circumstances apply, you are exempt from submitting a QST:
- You work as a small supplier.
- Not Being a Quebec resident.
- The state doesn’t have any physical stores.
Provinces Under QST
As the name itself suggests, QST is applied in the Quebec province.
QST Tax Rates
GST and QST make up the sales tax in Quebec, with QST continuing at 9.975 percent and GST at 5 percent.
For instance, a non-resident supplier may be based in Ontario yet operate in Quebec without a physical location. In this instance, the clients should only be subject to a 5% GST.
On the other hand, merchants must add the QST to any individual purchases they deliver to citizens of Quebec.
Essential Points to Note while Selling Online
Following are some of the main points you may need to be concerned about while selling online:
- The sales tax rate applies according to the customer’s province
- Learn about the special tax rules that apply to the provinces that use GST and PST.
- Check out to see if the products you offer are tax-exempted.
Most goods are taxable, and while some people are required to pay more taxes on their purchases, other goods are zero-rated.
- Necessities like bread and milk
- Produce from the land, such as fruits and vegetables
- Prescription medications and medical supplies
- Livestock
- Marine items
- No exemptions from paying for online sellers
Moreover, if you are a Canadian seller in the U.S., we have written a complete guide for your tax processes.
How to be Compliant with your Canadian Online Sales Tax?
There are 6 main steps you may need to go through while complying with your Canadian e-commerce sales tax.
- Identify the location of your consumer.
- Calculate and gather sales tax.
- Use the appropriate sales tax rate for the package’s delivery.
- Talk with an e-commerce consultant; you can claim the tax deduction by using his/her expertise. In addition to tax deductions, an e-commerce tax consultant can help you in figuring out many other business challenges.
- Take help from automated tools. For example, Shopify can help you determine where you must pay taxes and then automatically manage the tax rate you may need to charge from your customers.
- Send your sales tax payments to the Canada Revenue Agency (CRA).
