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Charging Provincial Sales Taxes on Online Sales

Part 1: Canadian Ecommerce and PST

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Online sales and provincial sales taxes

Online sales are not exempt from provincial sales taxes.

Image (c) Alan Frank / Getty Images

"If I am making online sales to people in other provinces, do I have to charge and remit other province's sales taxes?" is one of the most common questions about Canadian ecommerce.

This article explains how to handle provincial sales taxes (PST) on your online sales.

Page 1 explains the basic tax rules governing GST, HST and PST, focusing on those that apply when your business is shipping goods or supplying goods or services out of province.

Page 2 lists the HST and PST rates of all the provinces and explains the PST rules of each province as they apply to out-of-province businesses.

The general answer to the question in the opening sentence is "Yes". Online businesses are taxed just as offline, bricks-and-mortar businesses are, so generally the same rules apply.

However, as always in Canada, the answer is complicated by different rules in different provinces.

GST and HST

We can't talk about provincial sales tax (PST), though, without talking about the Goods and Services Tax (GST). Generally, if you are selling taxable goods and/or services to people in Canada, you will be charging and remitting GST to the federal government. (You will not charge GST on taxable goods and/or services shipped to people in other countries, such as the U.S.)

Many small business owners are aware that you don't have to charge and remit the GST if you are a Small Supplier. However, there seems to be a general misconception that the concept of being a small supplier also applies to Provincial Sales Tax - which is not true Tax – which is not true except in the province of BC. See Does Your Business Need to Register for BC PST? (Note that British Columbia returned to a provincial sales tax system April 1, 2013.)

In other provinces whether or not you have to register for and collect PST has nothing to do with the size of your business or the volume of your sales. It's just a matter of whether or not you're selling taxable goods and/or services.

And as five provinces have Harmonized Sales Tax, (Ontario, Nova Scotia, New Brunswick, Prince Edward Island* and Newfoundland and Labrador), you will want to voluntarily register for the GST. (It's also to your advantage to do so because as a GST registrant, you will be able to claim Input Tax Credits on the goods and services you purchase for use in your business.) Here's How to Register for the GST/HST.

*Prince Edward Island moved from a PST system to an HST system on April 1st, 2013; the combined HST rate in PEI is 14%, of which 5% will represent the federal part and 9% the provincial part.

General Tax Rules

The general rules for determining what taxes to apply to your Canadian ecommerce sale are:

1) if you are selling goods or services in your own province, the tax rules for your own province or territory apply. So, for instance, if your business operates in Ontario and you sell an item online to someone in Ontario, you would charge 13% HST on the sale.

2) if you are selling goods or services out of province, you charge the GST/HST rate based on where the goods are being shipped to. So, for instance, if your business operates in Ontario (HST 13%) and you sell an item online to someone in Nova Scotia (HST 15%), you would charge 15% HST on the sale.

3) If you are selling goods or services out of province to Alberta, the Northwest Territories, Nunavut or Yukon, which have no provincial sales tax, you would charge only GST (5%) on the sale.

Note that all of these examples assume that you are selling taxable goods and services.

But what if you sell something online to someone in BC, Manitoba, Saskatchewan, or Quebec? All four of these provinces have provincial sales tax.

The General PST Attitude

The consensus seems to be that the various provincial governments want out-of-province vendors to register for, collect and remit the applicable provincial sales taxes even when they are making online sales. Some provinces have enshrined this demand in legislation whereas others are just politely asking, pointing out that it would be a convenience to consumers in their provinces.

The next page provides more information on the provinces' positions on Provincial Sales Tax and out-of-province vendors and includes a list showing which taxes need to be collected and remitted for each province. Click to continue reading...

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