A huge draw of eCommerce is that a seller’s potential market might include many nations. And U.S. sellers looking to go international might naturally first look north.
Canada is now the 11th largest market for eCommerce in the world, with a predicted revenue of more than 63 million (in U.S. dollars) by last year. Leading eCommerce market segments into Canada have included fashion, hobby/leisure, electronics, furniture/homeware and groceries, according to latest statistics.
Especially for the U.S. northern states, having customers or clients in Canada can happen easily, but what sales tax rules apply?
The same but different
Canada’s sales tax situation resembles that of the U.S. is that rates differ by widely recognized geographic boundaries. (Canada now even has sales tax holidays.) The U.S. northern neighbor also has less scattershot sales tax obligations than U.S. states and local jurisdictions – and it helps that there are far fewer Canadian provinces than there are U.S. states.
Canada’s nationwide Goods and Services Tax (GST) is a value-added tax levied at each stage of the production and distribution chain, collected by businesses and remitted to the Canada Revenue Agency. Some provinces have their own Provincial Sales Tax (PST). Some provinces combine the GST and PST, ostensibly to streamline and ease the burden of sales tax compliance, into a Harmonized Sales Tax (HST).
The Canadian provinces of Alberta, Northwest Territories, Nunavut and Yukon only apply the GST. Provinces that levy a PST in addition to the GST are British Columbia, Manitoba, Quebec (where’s it’s known as the “QST”) and Saskatchewan. The HST applies in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island (all 15% except for Ontario, which its 13%, and Nova Scotia, where the HST drops to 14% on April 1).
How to register and file
Generally, your company is deemed to “carry on” business in Canada if it sells products to customers in Canada and use Canadian-based resources to do so, including local advertising and/or warehouses. Sporadic shipments to customers do not constitute regular and continuous business activity, but most of the goods and services in Canada are considered taxable supplies.
For foreign “digital economy” business companies, registering to collect and remit Canadian sales tax starts with a Revenue Agency questionnaire. If you need to register for the GST/HST, you need to register for either a simplified GST/HST account or a normal GST/HST account. Simplified GST/HST is for cross-border digital products and services and platform-based short-term accommodation. Normal GST/HST is available for supply of qualifying goods.
Your duty to register generally depends on if your threshold amount of applicable revenues exceeds $30,000 CAD over any 12-month period beginning on or after July 2021. Less than that and most businesses qualify as a “small supplier” and don’t have to register, though those businesses may have to file a Canadian income tax return.
If your company meets the above requirements you will need to register for a Business Number (BN) with the Revenue Agency. A manual application can be submitted online or by mail, fax or phone to the appropriate Non-Resident Tax Centre (TC).
Once you open a BN and a GST/HST account, you must file your tax returns by the assigned due date. The date and frequency of filing depends on your expected Canadian taxable sales: for $1.5M or less, annual with the return due three months after the end of fiscal year-end; for $1.5 to $6M, quarterly with the return due by the end of the next month; and for $6M-plus, monthly with the return due by the end of the next month. If you registered but collected no sales taxes, you must file a nil return. The Revenue Agency may also require a security deposit.
Here are some more facts about Canadian sales tax for U.S. sellers if you would like to learn more – 6 Things to Know About Sales Tax in Canada.
Sales tax non-compliance across borders can add significant risk to your business. Contact us to learn about the latest developments in international sales tax nexus and what it means to your company.
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