Consider the following scenario, which will sound familiar to many start ups.
You have a business based out of your home in Winnipeg, selling specialty books to customers across Canada. You take orders through a web-based form and send e-books over the web or hard covers via mail to clients in each and every province and territory.
So which sales tax do you calculate for a customer based in Nova Scotia? To whom do you remit these taxes? Do you even need to charge taxes if your business is e-commerce?
First and foremost, be advised that the taxman will get his share (unless your small business brings in less than $30,000 in annual sales, which exempts you from collecting GST/HST). Although the files you sell are not a traditional, physical product, their status in the digital ether does not exempt you from collecting federal and provincial sales tax.
Some quick sales tax facts:
- If you’ve registered a business with the Canada Revenue Agency to collect GST, you are already registered to collect HST at the rate in place in HST-participating provinces:
- New Brunswick = 13%
- Nova Scotia = 15%
- Newfoundland = 13%
- Ontario = 13%
- Prince Edward Island = 14%
- There are different sales tax rules in Québec, BC, Manitoba and Saskatchewan, and also specific criteria and exemptions on sales tax. Generally, though, online sales to customers based in these provinces will be subject to their provincial sales tax and the federal GST. Alberta, the Northwest Territories, Yukon, and Nunavut do not have provincial sales tax, so only GST is collected.
- Québec uses a similar system to the HST, except it is administered by Revenue Québec (QST = 9.975%)
- British Columbia = 7%
- Manitoba = 8%
- Saskatchewan = 5%
- Alberta, Yukon, Northwest Territories, and Nunavut = no provincial sales tax
- If your business does sales across Canada via the internet, you are required to charge and collect GST/HST at the rate that applies to the province in which the taxable goods are delivered.
In our example, the Winnipeg-based retailer making a digital sale to a customer in Nova Scotia would charge the Nova Scotia HST rate (15%) and remit to the CRA.
The taxman is still playing catch-up in an increasingly borderless world of digital content. The federal government is considering levying a tax on foreign-based digital content used by Canadians (think Netflix). One proposal to make this less burdensome for foreign-based businesses would be to collect and remit sales tax only at a certain revenue threshold. The coming federal budget may reveal the government’s direction.
Much more detailed information on the application of sales tax across Canada is available to help your start up stay in the taxman’s good books.