When you run an online business, your website is your storefront, and the world is your oyster. Whether you’re selling subscription boxes on Shopify, vintage clothing on Amazon, or custom prints on Etsy, your customers can come from anywhere.
Where there’s income (customers) there are taxes involved.
If you’re ready to wrap your head around the tax implications of starting an e-commerce business, this article is for you!
- Whether you’re a traditional or web-based business, the same tax laws apply.
- If the revenue from your E-commerce business exceeds $30,000 you’re required to register for a GST/HST number.
- Each province has a different sales tax rate.
Do e-commerce businesses pay taxes in Canada?
Whether you’re a traditional or web-based business, the same tax laws apply. Your tax reporting requirements are driven, not by whether you’re virtual, but by how your business is structured for legal and tax purposes. This is something you decide when registering your business.
Do I need to register my e-commerce business in Canada?
Registering your business is a must, but how you structure it is up to you. An e-commerce business generally falls into one of three categories:
- Sole proprietor: You run your business by yourself and your business is unincorporated.
- Partnership: Your self-employed business is operated by two or more people.
- Incorporation: Your business is run as a separate legal entity (‘the corporation’).
Your business structure determines so many things: how you’re taxed, what your liabilities are, and even the forms you fill out at tax time.
Each set-up has its pros and cons. In case you’re still in the planning stages of your online business venture and unsure about which business structure makes the most sense, an expert from TurboTax can point you in the right direction.
What if I sell in Canada and also internationally?
The CRA expects you to pay income tax on your online earnings no matter where in the world your customers come from.
From the CRA’s point of view, the only difference between Canadian and international customers is that international customers don’t pay sales tax.
Do I have to charge sales tax?
If your business earns more than $30,000 a year (regardless of whether it’s a profit), you must charge your Canadian customers sales tax as per the rate of the province you are shipping it to (see chart below).
For example: Stephen lives in Ontario and owns an e-commerce store selling BBQ supplies to customers in Canada. Today, he made a sale for $100 to a customer living in Québec. Stephen will need to charge an additional 5% in GST ($5.00) and 9.975% in QST ($9.98) for a total of $114.98 to his Québec customer.
From this transaction he should report $100 in sales, and $14.98 in total sales tax collected on his next sales tax return, based on the 2021 tax rates.
If you’re unsure of whether you’ll clear the $30K mark or want to set up a GST/HST number in advance to get a head start on proper recordkeeping, it’s worth reading up on the ins and outs of registering for, collecting and reporting GST/HST.
Provincial sales tax rates
In name and amount, sales tax varies by province and territory. This handy chart breaks it down:
Sales Tax Rates
5% GST and 7% PST
5% GST and 9.975% QST
5% GST and 7% Retail Sales Tax
Newfoundland & Labrador
Prince Edward Island
5% GST and 6% PST
How do I report my e-commerce business activities on my tax return?
If your online business is your full-time job, you’ll be taxed on your net income (your total income minus your expenses) just like any self-employed person.
If you have other sources of income or a full-time job, the CRA will expect you to report the gross income from your online business as a percentage of your total gross income.
TIP: If you’re selling within an external website like Amazon or creating paid content on YouTube, you should receive an income statement from that online enterprise to use for reporting within your tax return.
Sales tax might also be collected and remitted on your behalf, as an instalment, but you’ll still need to complete and file your sales tax return and pay any remaining balance on time.
It’s worth noting that if your earnings from your online business nudge you into a higher tax bracket, any income in excess of your original tax bracket will be taxed at a higher rate.
What expenses can I claim for my e-commerce business?
Tax deductions are a small business owner’s best friend. As an e-commerce business, you’ll be able to claim many of the same write-offs as a bricks-and-mortar store. So try to keep track of every expense, even the small ones. Every receipt adds up and together, they may even knock you into a lower tax bracket.
To ensure you don’t miss a trick, check out our Big List of Small Business Tax Deductions.
Capital Cost Allowance
Unlike typical expenses which you claim in one swoop, the cost of larger business assets, such as office furniture or computer equipment, must be deducted in increments, over time. Office furniture, for example, is deducted at 20% of its value each year, while machinery and equipment is deducted at 30%.
If you’re planning a major purchase or two to support your business, read up on how capital cost allowance works.
File with confidence
Whether you’re slowly nurturing your customer base or growing so fast you can hardly keep up with demand, wouldn’t you rather spend more time selling and less time fretting about the tax implications of it all?
With options that range from expert tax advice to expert tax preparation, TurboTax provides virtual businesses with real-world tax advantages.