July 3, 2023

Do You Have To Charge Sales Tax On Your Online Sales To Canada?

As the e-commerce platform continues to grow, and more independent business owners join the loop, deciphering the laws surrounding sales tax for online transactions can be puzzling. As an overview, there are three types of sales tax in Canada.-Federal Sales Tax, Goods and Services Tax (GST) is applied at 5% to sales anywhere in Canada-Harmonized Sales Tax (HST) is charged on sales to provinces that have integrated their provincial sales tax system with the Federal GST.-Provincial Sales Tax (PST) is charged on sales to provinces that administer their own sales tax i.e.) British Columbia, Saskatchewan, Manitoba and Quebec.

Should you register your business and charge GST/HST?

Different requirements determine whether your business should charge GST/HST on its products? For starters, it depends on whether your company meets the definition of ‘carrying on a business in Canada”. This in itself consists of various factors, such as the place of purchase, the place of delivery, the place where your employees or agents are located, the location of assets, etc. The determination will be based on the number of boxes you have checked and can only be assessed on a case by case basis. In addition, the determination is also based on the product you sell or the service you provide. Certain products and services are tax exempt in Canada for which you are not required to register. If you do meet the definition of “carrying on business in Canada’ and your product or service is not tax exempt, you can still take a pass on the registration if your worldwide annual sales are less than $30,000. However, it is mandatory to register once you cross the $30,000 mark in a year. Note that once registered federally, the business is automatically registered for both GST and HST.

Should you register with the non-HST provinces separately?

The answer here again is it depends. Each province has its own regulations. The obligation to register with the provinces separately depends on similar factors such as if there is inventory held in the province in question or if sales are solicited, the amount of revenue made annually, etc. The rates vary from one province to the other and place of supply rules apply. That is, you have to charge the sales tax rate of the province where your customer is based. For instance, if a business is based in Ontario and a customer living in British Columbia makes an order through Shopify or Amazon, the company will have to charge the customer the Federal rate plus the British Columbia rate for PST, if it is registered.

Of course, this isn’t a one-fits-all scenario because every business is different. Each case has to be looked at individually based on its facts. Get in touch if you require assistance in assessing your case.

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