Whether you’re selling via Amazon, your own Shopify store, or using any other e-commerce platform, you’ve likely searched for some answers around the accounting and tax structure of your business as you begin to grow.
Here are a few short answers to common questions for Canadian based e-commerce businesses:
Should you incorporate?
Whether or not you’ll want to incorporate will be based on both legal and tax considerations. If you’re concerned about liability, incorporating will be one way to protect your personal assets from a potential creditor. From a tax standpoint, if you’re earning more than you need to live, you should start to think about incorporating. Check out this article for a more in-depth discussion.
Where do you incorporate?
If you have global customers, you may be wondering if you should incorporate in jurisdictions outside Canada. If you sell on Amazon.com, should you incorporate in the US? If the majority of your customers are in the UK, should you setup an entity there? Not to mention you work remotely – does that mean you can incorporate in Barbados? Generally speaking, the location of a corporation is determined by mind and management – if the owners or decision makers of the company are in Canada for more than 6 months in a calendar year, the CRA may have the right to tax you, regardless of where you decide to incorporate. A Canadian corporation can accept revenue from customers world-wide so if you’re physically located in Canada, you’ll likely want to incorporate here first.
Should you be charging sales tax?
Whether or not you charge sales tax (GST/HST) will be based on the type of product you’re selling and the amount of revenues you earn. Generally speaking, if you earn more than $30,000 in a year, you’ll need to register and collect GST/HST. As your customers can be located in any province, you’ll want to make sure your e-commerce platform is setup to collect the GST/HST amount that relates to that province. If you’re not sure you’ll be earning more than $30,000, it could still make sense to register. For more information on the subject, check out this post.
Do you charge PST (Provincial Sales Tax)?
A number of provinces that charge GST also have a PST (also called RST or QST in certain provinces) component that is managed by the province. Each province that has PST will have its own set of unique rules that determine whether or not you should register. In general, if you’re located in a province that has PST (ie. Quebec, BC, Manitoba, Saskatchewan) there’s a higher likelihood that you’ll need to register and collect PST for sales that occur in that province. If you’re located outside of those provinces, while you’ll need to check the specific rules, there’s a smaller chance that you’ll need to register and collect PST.
Should you register for US sales tax?
If you sell on Amazon.com or have a high percentage of US customers, you’re probably wondering if you should be charging US sales tax. The answer is closely tied to the question of ‘where to incorporate’ since whether you charge US sales tax has to do with whether or not you have a presence or permanent establishment in the US. If you do have a clear permanent establishment in the US (ie. You pay employees who sit in an office with a fixed physical location in the US), there’s a higher likelihood you’ll need to charge US sales tax on your product and setup some type of US entity. If it’s not crystal clear that you have a permanent establishment (ie. you use a 3rd party logistics provider like Amazon), you’ll need to think about the pros and cons of registering. Check out this article for more details.