Understanding Tax Obligations For An E-Commerce Business In Canada

In the past few decades, e-commerce has become an increasingly important part of the Canadian economy. Individuals eager to turn their talents and hobbies into a source of supplementary income, as well as major corporations, have taken advantage of the wider markets facilitated by the internet to find new customers for their products and services. If you own, or are thinking of starting, an e-commerce business in Canada, you likely have questions regarding Canadian business tax for e-commerce. Read on for an overview of how the Canada Revenue Agency (CRA) handles taxes for online business, and consider scheduling a consultation with an experienced Nova Scotia business tax lawyer to develop a more detailed treatment tailored to the particulars of your situation. Call an experienced business tax lawyer at Jeremy Scott Law at (902) 403-7201 today to learn more about your legal rights. 

Does Online Business Need To Pay Tax in Canada? 

Canadian businesses may be subject to a number of taxes. Among the most important of these is the Goods and Services Tax (GST), a federal sales tax collected throughout the nation. Some provinces also impose a separate Provincial Sales Tax (PST), while others combine their provincial tax with the federal GST. Businesses in these provinces collect and remit a single Harmonized Sales Tax (HST) to the Canada Revenue Agency, while those in provinces charging PST will remit GST to the CRA and tender their collected PST to the corresponding authorities in their province. One province, Alberta, does not impose a province-level sales tax requirement – but businesses will still be responsible for collecting and remitting the federal GST on “taxable supplies” made in Alberta.

In addition to GST/HST, businesses throughout Canada may need to pay other specific taxes, depending on their legal structure and the industry in which they operate. Examples include theCorporation Income Tax, which only applies to incorporated businesses, and the Fuel Charge, which only applies to distributors of certain fuels as described under the Greenhouse Gas Pollution Act. 

What Is the Tax on E-Commerce in Canada? 

The CRA explains that e-commerce businesses are subject to all the same laws that apply to other businesses. In general, therefore, ensuring compliance with the tax laws of the jurisdiction (i.e., any provincial or territorial regulations) in which the business is headquartered, and staying abreast of any industry-specific developments that may have tax implications, will be as important for an e-commerce business in Canada as they are for any other Canadian business. 

Digital Services Tax 

In addition to the general requirements for GST/HST and the appropriate business income tax filings, very large businesses engaged in e-commerce anywhere in Canada may be subject to a specific tax, depending in large part on the scale of the company’s gross revenue. The Canadian government has announced its intentions to go through with a controversial plan to enact a 3% Digital Services Tax on large companies, both domestic and international, conducting business with residents of Canada online. The tax would apply to businesses that generate more than €750,000,000 globally and $20,000,000 “in-scope” (that is, in business with Canadian resident individuals and businesses) in the course of a year. 

Because many of the companies that stand to be most affected by the DST have their primary headquarters elsewhere in the world (notably in the United States), enactment of the legislation has been several times postponed as diplomats and policy-makers around the world have sought to find terms that might serve to establish international norms for the taxation of digital commerce that would be palatable to all involved. As of April 2024, the tax was expected to be applied retroactively to January 1, 2022. 

Digital Tax Credits

In a few cases, companies engaged in the development of digital products or services may be able to offset a portion of their overall Canadian business tax liabilities with applicable tax credits. While not generally aimed at the large companies expected to be subject to the Digital Services Tax, for qualifying organizations these credits may provide an attractive means of reducing total tax burden. 

Some tax credits designed to facilitate digital innovation are awarded at the provincial level, rather than through the CRA; for instance, Nova Scotia has extended the timeline for its Digital Media Tax Credit and Digital Animation Tax Credit to the end of 2030. A Canadian business tax lawyer with Jeremy Scott Law may be able to help you determine whether any tax credits might be available for your e-commerce business in Canada. 

Do I Need To Register My E-Commerce Business in Canada? 

For one of the most widely applicable Canadian business taxes, GST/HST, e-commerce vs. physical location makes no difference in the company’s tax responsibility. However, because the low overhead costs of many digital platforms often hold special appeal for small businesses, Canadian businesses that qualify for the “small supplier” exemption on the federal Goods and Services tax may be overrepresented in e-commerce contexts. 

Contrastively, “non-resident vendors” who make taxable supplies to Canadian individuals or resident businesses may need to collect GST/HST on their transactions with Canadian customers and remit the collected sales tax to the CRA. This tax reporting obligation may mean that some businesses classified as non-resident vendors may need to register for a GST number. 

Small Supplier GST Registration for Online Business 

Under Section 148(1) of the Excise Tax Act, a Canadian business generally qualifies as a “small supplier” if its total revenue over four consecutive quarters does not exceed $30,000, subject to some caveats. Small suppliers, according to the Canada Revenue Agency, are not required to register for GST/HST, although they may choose to do so voluntarily under some circumstances. GST registration may be advantageous for small suppliers who anticipate taking advantage of Input Tax Credits (ITCs) on “zero-rated” supplies (goods or services whose GST rate is set at 0%). 

Non-Resident Vendors 

The borderless nature of electronic communications has arguably made it more feasible than ever before for businesses of all sizes to find and serve customers in distant locations. Meanwhile, consumers are able to take advantage of sellers’ competition for their business across a global marketplace. This combination of factors has raised a number of jurisdictional questions, not only in adjudicating matters when there is a dispute between business and customer, but also in determining who owes sales tax, and where, when, and by whom the tax must be assessed and collected for remittance. One way the Canadian government has adjusted its tax policies to keep pace with changes in the commercial landscape has been through the adoption of streamlined sales tax requirements for non-resident vendors.

According to guidance from the CRA, non-resident vendors and distribution platform operators selling digital products and services, qualifying goods, and short-term accommodation to Canadian consumers can take advantage of a simplified GST/HST registration and reporting system. The operators of platforms facilitating transactions for short-term accommodations also have the option to use this simplified system, although if the owner of the rented property exceeds the four-quarter income threshold for a small supplier and is independently registered with the CRA, the sales tax can be collected and remitted in association with the property owner’s GST registration number instead of being assessed and added to the rental fee by the platform. 

Consult With an Experienced Canadian Business Tax Lawyer 

Canadian business taxes can be complex. Keeping track of shifting tax obligations and reporting requirements as legislators enact policy updates in response to changing conditions in the global online marketplace can pose challenges for individuals and organizations seeking to maintain Canadian business tax compliance. If you have questions about your tax obligations regarding an e-commerce business in Canada, consider scheduling a consultation with an experienced business tax lawyer to discuss the latest policy guidelines and review the procedures that may apply to your business. Contact Jeremy Scott Law by calling (902) 403-7201 today, and set your Canadian e-commerce business on the path to success.