Canadian Tax Essentials For Foreign E-Commerce Businesses

Canada stands as the 9th largest e-commerce market, poised to reach a remarkable revenue of $55 billion by 2023. This dynamic market promises substantial growth, with an anticipated compound annual growth rate of 10.6%, potentially surging to a market volume of $83 billion by 2027. However, foreign e-commerce businesses entering the Canadian market must grapple with tax regulations, distinct from those they’re accustomed to. The intricate Canadian indirect tax landscape presents substantial challenges for non-resident e-commerce sellers catering to Canadian consumers. To navigate this complexity effectively, it’s essential to understand the nuances of the Canadian tax system, characterized by a combination of federal and provincial taxes.

Canadian indirect tax system

At the national level, the Goods and Services Tax (GST) is applicable across the entire country. Additionally, six provinces – New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island – have harmonized their provincial sales taxes with the GST, creating the Harmonized Sales Tax (HST), which functions in much the same way as the GST. Three provinces, namely British Columbia, Manitoba, and Saskatchewan, maintain their distinct provincial sales taxes, often referred to as PST. It’s worth noting that Manitoba labels its tax as the Retail Sales Tax (RST). PST and RST apply independently of the federal GST, mirroring the concept of sales and use taxes in the United States. Typically, they pertain to tangible personal property (TPP), specific services and software. Unlike a Value Added Tax (VAT) system, they don’t allow for the recovery of taxes through input tax credits, deductions, or refunds. However, certain point-of-sale exemptions may apply, such as for sales intended for resale or manufacturing purposes. Quebec stands as the sole province with its own VAT system, known as the Quebec Sales Tax (QST). The QST is levied in addition to the GST for transactions conducted within Quebec. Four provinces – Alberta, Northwest Territories, Nunavut, and Yukon – do not impose any provincial sales tax.