Do you want your business to be more profitable? Do you want your financial forecasting results to be favorable? There is one way to help with that, by keeping your tax costs as low as possible. Read on to find legal ways to reduce business tax in Canada.
Sales Tax in Canada for Online Businesses
One of the advantages of operating an online business is the immense customer reach. This opportunity allows business owners to transact with customers in different provinces and countries with relative ease. However, online business owners need to be aware of potential sales tax implications in Canada for shipping goods or services out-of-province or to other countries.
When to charge GST, HST, and PST?
Businesses are required to charge and remit GST on sales if their total revenues over the last year are greater than $30,000. If your business meets this criterion, you will be considered a mandatory GST registrant. As such, you will have to collect and remit GST on the sale of any taxable goods or services to people in Canada. You are not, however, required to charge GST on sales to other countries. To register for a GST/HST account, you will have to file an RC1 Form (request for a business number) with the CRA.
Further, when selling taxable goods or services to people in Canada, business owners need to be aware of provincial sales taxes. This can get a little complicated as some provinces participate in a Harmonized Sales Tax (HST), while others have a Provincial sales Tax (PST), and a few have no provincial tax.
The thing to keep in mind is if you are selling goods or services out-of-province, you should charge provincial tax based on where the goods are being shipped to. For information on provincial taxes and rates, please see – 2013 Sales Tax Rates
Provinces with HST
Ontario, Nova Scotia, New Brunswick, and Prince Edward Island have Harmonized Sales Tax (HST), which is comprised of a federal portion (GST) and provincial portion. For example, Ontario’s HST rate of 13% includes GST of 5% and provincial tax of 8%. When selling to these provinces, you will have to charge the appropriate HST for the province in which the customer is located.
For more information on GST/HST on sales of taxable goods and services to another province, please read my article – http://madanca.com/blog/do-i-charge-gst-or-hst-on-the-sale-of-good-and-services-to-another-province/
Provinces with PST
British Columbia, Manitoba, Saskatchewan, and Quebec have Provincial Sales Tax. Each province has its own unique perspective on collecting and remitting PST. However, the general consensus among these provinces is that they want out-of-province vendors (including online businesses) to register as Provincial Sales Tax Vendors, and collect and remit the applicable provincial sales taxes.
Saskatchewan and Quebec take the position that all persons making taxable sales in their province should register as an out-of-province vendor and collect PST. But vendors are not required to do so. However, if non-resident businesses do not register and collect and remit PST, the customers will be required to self-assess and remit the tax.
British Columbia and Manitoba take a hard line view on sales. Out-of-province businesses that sell taxable goods to customers in these provinces are required to be registered as a vendor and to collect provincial tax if all of the following circumstances exist:
- The seller solicits the order for the sale of taxable goods in the province,
- The seller accepts purchase orders originating in the province,
- The goods are acquired for consumption or use in the province, and
- The seller causes the goods to be delivered in the province.
Provinces without Provincial Tax
Alberta, Yukon, Nunavut, and the North West Territories have no provincial sales tax. So when selling taxable goods or services to these provinces, you will only be required to charge GST (5%) on sales.
If you are a non-resident of Canada and are selling to Canadian customers, you will be subject to Canadian Customs tax. Customs will charge you the federal sales tax rate of 5% on the import of any taxable goods or services.
If you are a GST/HST registrant, you will have to collect and remit HST (13%) on sales to customers in provinces participating in HST. You will be able to claim an input tax credit (ITC) on your HST return for the 5% customs tax you incurred on the import of goods. Further, you will be able to claim ITC’s for any tax paid on costs incurred during the selling process.
If you are selling to customers in provinces with PST, you will have to collect and remit PST on sales to customers in these provinces. Whether you can claim ITC’s for customs tax and other selling costs may vary based on the province in question. Please contact your Accountant for more details.
Sales Tax Tips for Online Business Owners
If you sell taxable goods or services through a website, it is a good idea to obtain customer addresses so you can track sales taxes for Canadian customers. Joomla offers downloadable modules such as Sales Analytics, which allows the website administrator to track customer location. This will enable you to collect and remit the appropriate sales tax for each customer.
Also, as an online business owner, you may incorrectly believe that you can open a US pay-pal account to collect from Canadian customers to avoid paying sales tax in Canada. Unfortunately, this does not exempt you from collecting and remitting taxes on sales to customers in Canada.
As is evident from the discussion above, the rules surrounding sales taxes in Canada can be complicated. As an online business owner, the important thing is to be aware of the diverse nature of sales taxes in Canada. Therefore, it is imperative that you know where your customers are located, as this has a major impact on your tax consequences.
For more information on sales taxes in Canada and other business inquiries please contact your Accountant.
The information provided on this page is intended to provide general information. The information does not take into account your personal situation and is not intended to be used without consultation from accounting and financial professionals. Allan Madan and Madan Chartered Accountant will not be held liable for any problems that arise from the usage of the information provided on this page.