Introduction to Canadian Taxes

As a merchant, you may be required to report and remit taxes from sales to your government. Shoplazza offers automated calculations to simplify the often complex and changeable tax laws and regulations. Additionally, tax overrides can be configured to account for special tax laws and scenarios.

It's likely that you'll need to register your business with the local or federal government to handle the sales taxes. To make the filing and payment processes smoother, Shoplazza provides calculations and repor.

This article is intended for Canadian merchants who sell in Canada. To ensure you are accurately applying local and provincial tax rates, as well as properly filing and submitting your taxes, consulting with tax authorities or a professional is advised.

General steps to set up taxes in Canada

Follow the links for more detailed information:

• If you're running a Shoplazza online store, then set up the countries you will be shipping to .
• Set up the tax rates in the provinces to which you will be selling and shipping your products.
• Override tax rates or exempt products from taxes where necessary. Any overrides that you set apply to online sales.

As you set up taxes, you can access and review your settings on the Taxes page in your Shoplazza admin.

Setting up or reviewing tax settings on your store

1. From your Shoplazza admin > Settings > Taxes, switch over to Manual tax rate settings and click Manage Profile.

2. Under the Tax rate settings, search Canada then click the pen icon to edit.

3. In the Canada section, click the region that applies, and add the proper tax rate for that region.

4. Click Save after making adjustments.

Sales tax rates by provinces

Selling in Canada

An Overview of GST, PST, and HST

The Canadian sales tax system has both federal and provincial components. The best way to think of it is to consider which tax applies in which province.

• Goods and Services Tax (GST) is a 5% value-added tax levied by the federal government. It is placed on almost all goods and services. This tax applies to the entire country, but some provinces use it as their sole sales tax. The provinces that only have GST are Alberta, Northwest Territories, Nunavut, and Yukon. That means these provinces charge a 5% sales tax on most goods and services.
• Provincial Sales Tax (PST) is a tax levied by certain provinces in addition to GST. The tax amount varies by province. The provinces that have PST are British Columbia, Manitoba, Quebec, and Saskatchewan. British Columbia and Manitoba both have a 7% PST, so the total sales tax combined with GST is 12% in those provinces. Quebec has a 9.975% PST, resulting in a 14.975% total sales tax. Saskatchewan has a 6% PST, so the total sales tax combined with GST is 11%.
• Harmonized Sales Tax (HST) is a combination of GST and PST that exists in some provinces. The goal is to make it easier to collect sales tax by only collecting one tax. The provinces with HST are New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. All of these provinces charge a 15% HST except Ontario, which charges a 13% HST.

Determine whether you need to charge sales tax

You need to determine whether you should charge sales tax. If you're not sure, then consult with a local tax accountant or other tax specialist, as well as with provincial and federal tax agencies  .

If your store is based in Canada, then generally you need to register for a GST/HST account if both of the following are true:

• You sell or lease taxable products or services.
• Your revenue from taxable sales in Canada is more than 30,000 CAD  over the past four completed consecutive calendar quarters, or more than 30,000 CAD over the current calendar quarter.

If your store is not based in Canada, then generally you need to register for a GST/HST account if both of the following are true:

• You sell taxable products or services to customers in Canada, and fulfill those orders from a warehouse located in Canada.
• Your revenue from taxable sales in Canada is more than 30,000 CAD over the past twelve months.

If either of the preceding cases apply to you, then you might need to collect taxes on your sales, remit those taxes to the appropriate tax authority, and file regular reports with the tax authority. If your sales are lower than the threshold, then you don't need to register for a GST/HST account, and you don't need to collect or remit taxes.

Do I need to register for a GST/HST number?

That depends on your business. If your store is based in Canada, then generally you need to register for a GST/HST account if both of the following are true:

• You sell or lease taxable products or services.
• Your revenue from taxable sales in Canada is more than 30,000 CAD over the past four completed consecutive calendar quarters, or more than 30,000 CAD over the current calendar quarter.

If your store is not based in Canada, then generally you need to register for a GST/HST account if both of the following are true:

• You sell taxable products or services to customers in Canada, and fulfill those orders from a warehouse located in Canada.
• Your revenue from taxable sales in Canada is more than 30,000 CAD over the past twelve months.

If either of the preceding cases apply to you, then you might need to collect taxes on your sales, remit those taxes to the appropriate tax authority, and file regular reports with the tax authority. If your sales are lower than the threshold, then you don't need to register for a GST/HST account, and you don't need to collect or remit taxes.

If a province where you sell products and services charges a provincial sales tax (PST) separately from the goods and services tax (GST), then you might need to register in that province, too.

If you're not sure whether you need to charge sales tax, then consult with a local tax accountant or other tax specialist, as well as with provincial and federal tax agencies  .

How do I know if I need to register at the provincial level?

The provinces that charge a separate provincial tax are British Columbia, Manitoba, Quebec, and Saskatchewan. These requirements vary depending on the province. For more details, refer to the Registering with Canadian tax agencies in the next few sections below. For example, you might need to register if you operate or advertise in those provinces.

I need to register my business along with GST/HST. What do I do?

For GST/HST, you can register on the CRA (Canada Revenue Agency) website  . If you need to register provincially, you can do so on the specific provincial website. To apply for a business number (registering your business), click here  .

I don't need to register. What do I do?

If you've determined that you don't need to charge Canadian taxes, then go to your Taxes page and deselect Canada.

Registering with Canadian tax agencies

If you determine that you need to charge sales tax in one or more Canadian regions, then you need to contact each of the relevant agencies and register with them. The process varies depending on where your business is based and where you sell, and on the individual government requirements.

Before you start selling, register with each agency in the tax regions where you will be selling:

• Federally For information on GST/HST in Canada, visit the Canada Revenue Agency website  or call the agency at 1-800-959-5525.
• British Columbia For information about taxes in British Columbia, visit the BC Ministry of Finance website  or call 1-877-388-4440.
• Manitoba For information about taxes in Manitoba, visit the Manitoba Ministry of Finance website  or call 1-800-782-0318.
• Quebec For information about taxes in Quebec, visit the Revenu Québec website  or call 1-800-567-4692.
• Saskatchewan For information about taxes in Quebec, visit the Revenu Québec website  or call 1-800-567-4692.

If you need to charge sales tax in one or more Canadian jurisdictions, then you need to contact each of the relevant agencies and register with them. The process varies depending on where your business is based and where you sell, and on the individual government requirements.

Is there a GST / HST calculator I can use?

If you know your place of supply and type of supply, you can use the GST/HST calculator  to calculate the amount of GST / HST to charge. If provincial sales tax (PST) is charged in the place of supply, calculate the goods and services tax (GST) on the price without the PST. For more information on what rates to charge, click here  . The rate of tax to charge depends on the place of supply.

Selling in the United States

Canadian startups, nexus, and taxes

Canadian businesses operating in or selling to the United States may be subject to income taxes in the US or they may also need to pay US sales tax. Whether a Canadian startup is subject to US taxes depends on whether it has “nexus” in the US.

Nexus

The concept of nexus essentially looks at whether a business has a non-trivial presence. It is determined on a state-by-state basis. There are slightly different criteria between nexus for sales tax and nexus for income taxes. In determining whether your Canadian business has nexus, consider if your business has employees (including those attending trade shows), provides installation or implementation, has inventory stored, or has a physical location or property (including intangible property) in the state.

Bear in mind that rules vary from state to state and even a temporary presence can be enough to have nexus. In Pennsylvania, for example, if a consultant is present in the state for more than seven days, the business is considered to have nexus.

It is also worth noting that if two businesses are affiliated with one another, in determining if one of them has nexus, the operations of the other can be taken into account. For example, in New York, if a business without nexus has as little as 5% cross-ownership with another business that does have nexus, it can result in the first company having nexus as a result of the affiliate nexus rules. Other connections, including sharing of intellectual property such as trademarks, can also result in the affiliate rules applying.

It is crucial to carefully consider the operations of a business in relation to each state in which it operates or has customers.

Business activities that create sales tax nexus include:

• Having an office, store or other location in a state (even a home office).
• Having an employee, salesperson, contractor, etc. in a state.
• Owning a warehouse or storage facility in a state.
• Storing inventory in a state (such as in an Amazon FBA warehouse or other 3rd party fulfillment center).
• Having a 3rd party affiliate  in a state (click-through nexus).
• Temporarily doing physical business in a state for a limited amount of time, such as at a trade show or craft fair.

Sales tax by state

A Canadian business with nexus for sales tax purposes in a state will be required to register for a sales tax permit and collect and remit sales taxes like any other business operating in that state.

As with GST/HST in Canada, sales tax rates can vary significantly from one jurisdiction to another. However, in the US, there is no federal portion to the sales tax. The total sales tax  that a business must collect and remit is made up of a combination of state and local government rates.

The tax amounts collected must be remitted to the state at least quarterly (although depending on size, a business may need to remit the taxes collected more often). Some local jurisdiction’s sales taxes are reported and remitted to the state (which passes them onto the local authorities), but others require that separate reporting be made.

Most services and some goods are exempt from sales taxes. Additionally, a customer can avoid paying the sales taxes if they present an exemption certificate. This can occur when the use of a product or service is deemed exempt (e.g., if the product is for resale or further manufacturing) or when the customer has been deemed exempt (e.g., a not-for-profit or government organization).

Paying income tax in the US

A Canadian business with nexus for US income tax purposes will be required to file a tax return for US federal and/or state income taxes. A business is taxable federally if it has a “permanent establishment.” This is a concept similar to nexus, although it generally takes more to have a permanent establishment than it takes to have nexus. As a result, you may have to pay state income taxes, but not federal income taxes.

The income tax returns will be based on the corporation’s Canadian year-end and taxes may be applied to the business’ net income, or, in some cases, to its gross revenues. When you file your Canadian tax return, you will receive a tax credit for the foreign taxes that were paid. This will decrease the amount of tax you are required to pay in Canada.

What is CUSMA / USMCA?

The Canada-United States-Mexico Agreement  (CUSMA) is a free trade agreement that brings together Canada, the U.S., and Mexico into one regional trade bloc. CUSMA relieves tariffs on qualifying goods  , thus lowering trade barriers and cutting costs for North American importers and exporters.

CUSMA replaces the North American Free Trade Agreement (NAFTA) as the region's trade treaty, which has been in place for 20+ years. This new agreement goes by a different name in each of the three countries that signed it. While known as CUSMA in Canada, it is called the United States-Mexico-Canada Agreement, or USMCA  , south of the border. In Mexico, people call it T-MEC  , reflecting the Spanish name of the treaty.

Taxes and Duties to Pay When Shipping from Canada to the U.S.

Duties and fees for customs clearance depends on several factors, such as trade agreements, import restrictions, and CBP ( Customs and Border Protection  ) compliance. Some necessary fees for U.S.-bound products include: import fees, regulatory fees, and inspection fees. There are exemptions too, like agricultural products grown, manufactured and produced in Canada. Here are some of the fees you need to consider when calculating shipping costs:

• Import Fees
  • When Shipping from Canada to the U.S., you must pay customs duty or import tax. You can use the Harmonized Tariff System  (HTS) to calculate your import duty. The HTS is a customs duty rate system of all items, calculated as a percentage of the total purchase value of the item you will pay in Canada.
• Regulatory Fees
  • When shipping regulated products to the U.S., you need to note that federal government agencies regulate products like sugar, softwood lumber, firearms, and ammunition. The set of agencies tasked to regulate this is collectively called the Participating Government Agency (PGA).
• Inspection Fees
  • For bulk shipment, a customs agent may randomly sample your shipment and inspect it to prevent the entry of harmful or illegal products. While CBP will bill you for the screening, the inspection seeks to ensure U.S. consumers' safety. Besides, it preserves the integrity of the U.S. marketplace by preventing the entry of prohibited and substandard products  .

Five Tips to Save on Duties and Taxes

While there is no way to avoid duties and taxes, you can avoid unnecessary customs charges from Canada to the USA. Here are some tips:

1. State the product’s HTS code on the commercial invoice. The HTS (Harmonized Tariff System) code depends on the purchase value, not the size, weight, or quality. Always state the products’ unique HTS code on the commercial invoice of the shipment, even if the cargo consists of multiple products. It will help the CBP accurately determine the duty to charge on the product.

2. Always provide the correct information. If CBP flags your shipment with falsifying information, it can initiate harsh penalties, criminal proceedings, or both.

3. Find a competent, reliable, and trustworthy customs broker. The broker should double-check your submissions to weed out discrepancies and non-compliance. Besides, they should help determine which bond best suits your product line and business goals, rather than focusing on brokerage fees.

4. Maximize preferential trade tariffs. You will enjoy duty exemptions and special rates, provided your products have a Certificate of Origin. It will cut down the operation costs of your new small business, effectively improving your retained earnings.

5. Couriers like local postal services USPS  offer special rates for businesses that regularly use their cross-border shipping services. Despite factoring in taxes and duties in their rates, these rates are usually low and sustainable for a small business. Besides, you will also benefit from free shipping supplies.

Do I need to collect and remit US sales taxes?

For Canadian businesses selling to the US, sales of exported goods to be consumed outside Canada are exempt from GST/HST. However, it may still be necessary to register for a sales tax permit in the US and collect and remit sales taxes on such sales.

You could be a manufacturing company in Ontario or Alberta but may still be required to collect and remit sales taxes on the orders you ship to customers within the US. This depends on whether your Canadian company has established a sales tax nexus in one or more states in the US.

The sales tax nexus may be triggered if your company has:

• A physical presence in a US state. It could be an office, a store, or a warehouse.
• Remote employees living within the US state.
• Sales reps who solicit business in the US.
• Merchandise stored in an Amazon fulfillment center.
• Annual US sales volume or the number of US sales transactions above a certain threshold  , which may vary from one US state to the other.

Keeping up with the requirements of Canadian sales taxes is already a challenge for small businesses. Assessing which of the 52 US states you may or may not have a nexus in and complying with their requirements of remitting and reporting sales taxes may be a bigger challenge. Using tax compliance software may be your best bet.

Are there any exemptions from US Sales Tax?

There are many transactions between Canadian sellers and U.S. customers where there’s no need to collect and remit U.S. sales tax. If you don’t have nexus in the customer’s state, you don’t need to add US sales tax to the order. Likewise, if your sale is tax-exempt (a wholesale order or a sale to a non-profit- if it’s in a state where non-profits are exempt from sales tax), there’s no need to collect U.S. sales tax.

Selling in the European Union (EU)

What is VAT (value-added tax)?

Consumption tax added to goods and services in almost all countries. VAT is added to all levels of the production and distribution chain. VAT incurred can often be reclaimed by U.S. and Canadian companies. A VAT number, also referred to as a value-added tax identification number (VATIN), is an identifier used in the EU. It's provided to you by a member country's tax authority after you register with them. This number is issued by countries to allow merchants to charge value-added tax.

How is VAT charged?

Value Added Tax (VAT) is charged on most goods and services in many countries, including in the European Union. The VAT rate is a percentage of the price of the goods or services and is usually added to the total amount that the customer pays. VAT is collected by businesses on behalf of the government, and the businesses then remit the VAT they have collected to the tax authorities. The amount of VAT that businesses can claim back from the tax authorities varies, depending on the rules of the country or jurisdiction.

What do I need to know about Brexit (EU)?

If you sell to customers in the UK, then the best way to get information about how Brexit affects your business is by reaching out to a local tax professional. As a starting point, the following are some of the new laws that apply to merchants who sell to customers in the UK:

• You might need a UK EORI  number.
• The UK VAT laws that came into force on January 1, 2021 result in new VAT requirements for sales equal to or less than 135 GBP.
  • If the sale of goods is equal to or less than 135 GBP, then you must register for VAT in the UK. In this case, VAT is collected at the point of sale and remitted by the merchant. If you use registration-based taxes and have a UK VAT registration, then VAT will be applied to your sales to customers in the UK.
  • If the sale of goods is over 135 GBP, then you might not be required to collect VAT at the point of sale. In this case, VAT and duties are remitted by the importer. If you use registration-based taxes and have a UK VAT registration, then VAT will not be applied to your sales to customers in the UK. If you choose to, you can charge your customer for VAT and duties at the time of sale, and then provide these funds to the shipper or importer using a shipping label. Alternatively, you can send the orders without charging VAT and duties, and your customer will pay extra funds at the time of delivery.

What do I need to know about selling in the EU?

When merchants outside the EU ship orders to customers in EU member countries, then the following import and duty rules apply:

• For orders that are equal to or less than 150 EUR, VAT is applied.
• For orders that are greater than 150 EUR, import VAT and duties are applied.

If you don't charge VAT and duties during the checkout process, then your customer pays them to the shipping carrier upon delivery.

One-Stop Shop and Import One-Stop Shop (OSS / IOSS)

One Stop Shop schemes are available that allow merchants to simplify charging and remitting VAT for sales to EU member countries.

• The One-Stop Shop (OSS) scheme, also called the Union OSS, is for merchants within the EU whose sales to other EU member countries require them to charge and remit VAT based on destination countries. You can use the OSS scheme if your annual sales to all other EU member countries are equal or greater than 10,000 EUR.
• If your annual sales to all other EU member countries are less than 10,000 EUR, then you can either use the micro-business exemption to charge your local VAT rate, or register for the OSS if you want to charge VAT based on the location of your customers.
• The Import One-Stop Shop (IOSS) scheme, also called the Non-Union OSS, is for merchants outside the EU that sell to customers located in any EU member country. You can use the IOSS scheme if you are located outside the EU and sell to customers located in an EU member country, and you don't want your customers to be charged tax upon delivery.

How do I register for an EU IOSS VAT number?

If you use the Import One Stop Shop program, it is necessary to register for an IOSS EU VAT number  in one EU country, which you may choose. Registering for the IOSS will allow you to consolidate all of your EU VAT monthly filings for each EU country into a single payment in the country where you are registered. When choosing one of the 27 EU countries/member states  for IOSS VAT registration, you may want to consider the main language spoken in that country, so you don’t have communication issues down the road. For example, Ireland  is a good country to register in for online retailers whose native language is English. If needed, you can change the country at a later date by de-registering in one country and registering in a new country.

Will I be able to override tax settings in my Shoplazza admin?

Sometimes the default tax rates won't apply to certain products. For example, certain types of children's clothing might be exempt from tax or have a lower tax rate. If the default rates don't apply, then you need to create an override.

Create or override tax on your store

1. From your Shoplazza admin > Settings > Taxes, scroll down to Manual tax rate settings and click on Create Profile.

2. Create a name for your override tax profile

3. Select the products or collection (you will see this after clicking Select products).

4. Select the zones to apply the tax override to which the override applies.

5. Enter the tax rate for the collection in that region.

6. Click Save once you've finished entering the rates.

It's important to prioritize doing your taxes for a couple of reasons. Firstly, it is a legal requirement that must be fulfilled accurately and on time to avoid penalties and interest charges. Secondly, paying your fair share of taxes is essential to ensure that the government has the necessary funds to provide essential services and infrastructure.

Keep detailed records, seek professional advice from a tax advisor if necessary, and stay informed about changes in tax laws to make the process smoother. Ultimately, taking the time to do your taxes correctly can benefit your financial well-being in the long run.

Shoplazza Disclaimer

The content presented on this page is intended to serve as a general informational resource. However, it should be noted that the information provided does not take into account individual circumstances, and thus should not be utilized without the guidance and advice of qualified accounting and tax professionals. It should also be noted that Shoplazza is not responsible for the filing or remittance of sales taxes on behalf of users. Therefore, in the event of any questions or concerns related to taxation matters, it is recommended that users consult with a licensed tax professional for personalized assistance.