What U.S. companies should know about selling goods and services in Canada
Like Americans, Canadians have embraced online shopping. According to Statistics Canada, more than 80% of Canadians were shopping online (some 27 million people) before the pandemic. Ecommerce sales volumes then doubled in 2020, the agency reported. This year, while down from their pandemic peaks, sales remain strong and the agency expects it to grow to a total of US$40.3 billion by 2025.
This creates an attractive market for U.S. companies seeking to expand their customer base.
The rules surrounding sales tax collection and remittance in Canada are also similar in some ways to those in the United States. Most, but not all, of Canada’s 10 provinces and three territories collect a sales tax within their boundaries.
However, Canada has a national sales tax (the Goods and Services Tax), while the United States doesn’t. In addition, five provinces have entered into an agreement with the federal government in Ottawa, which collects a single “harmonized” sales tax, with revenues shared between the federal and provincial governments.
Unlike the United States, Canadian municipalities and governments below the provincial or territorial level don’t levy their own sales taxes. That means American companies selling into Canada have far fewer sales tax jurisdictions to juggle than Canadian businesses that sell into the United States.
Does that mean sales tax compliance in Canada, with only 13 provinces and territories, is 1,000 times easier than sales tax compliance in the United States, where there are more than 13,000 sales and use tax jurisdictions?
Not exactly. There are differences in taxability and small business exemption thresholds between the provinces in Canada. There are items that are taxed at a rate of 0% but businesses still have to track and report those sales, even if they’re not collecting and remitting any tax when selling them.
But given that there are far fewer tax jurisdictions to navigate, doing business in the home and native land of Tim Hortons and TD Bank can be somewhat simpler in Manitoba than in neighboring Minnesota.
Canadian sales taxes: GST, HST, PST
All U.S. companies that sell products into Canada must comply with the terms of the United States-Mexico-Canada Agreement, which governs customs duties and requirements at the borders between the three countries. (The USMCA replaced the former North American Free Trade Agreement.)
When it comes to sales tax compliance, however, there are three main things to consider:
The federal Goods and Services Tax. The 5% GST applies across the whole country.
Provincial Sales Tax. Four provinces — British Columbia, Manitoba, Quebec, and Saskatchewan — levy their own provincial sales tax (PST) in addition to the federal GST. (In Quebec it’s called the QST.) The tax is applied to the price of a good before the GST is added. Rates vary by province, from 6% to 9.975%.
Harmonized Sales Tax. New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island levy the Harmonized Sales Tax. Businesses collect and remit one combined tax to the Canada Revenue Agency, which sends the provinces their share of the collected tax. The HST rate is 13% in Ontario and 15% in the other provinces.
Alberta, Nunavut, Yukon, and the Northwest Territories collect no sales tax, so businesses shipping to buyers in those jurisdictions only collect the 5% GST.
Non-resident vendors must register and collect tax
As of July 1, 2021, non-resident vendors that have annual sales of taxable goods in Canada of more than $30,000 CAD will likely need to register to collect the GST/HST.
KPMG’s Indirect Tax Guide for Canada states “Most supplies of property, including real property, and services are taxable for GST/HST purposes.”
This can include the sale and lease of automobiles; legal and accounting services; publications such as books, magazines, and periodicals; hotel accommodations, and many other goods and services.
However, Canada also has “zero-rated supplies,” which are goods that are taxed at a rate of 0%. (That is, they are considered taxable, but Parliament has decided not to tax them.)
- Basic groceries such as milk, bread, and vegetables
- Agricultural products like wheat, grain, raw wool, and dried tobacco leaves
- Prescription drugs and certain medical devices, including hearing aids and artificial teeth
(Here’s a comprehensive list.)
It’s important for businesses to track sales of zero-rated items, because sales of zero-rated goods count toward determining whether a business has more than $30,000 in annual sales. Companies with less than $30,000 in annual sales are not required to collect the federal GST.
Companies that have more than $30,000 in annual sales are required to register to collect GST; however, no GST is charged on their sales of zero-rated items.
Canada also has a category of services that are exempt from the GST/HST. This includes many educational services (such as tutoring) and most services provided by financial institutions.
The Canadian government has more detailed information about GST/HST requirements.
Provinces can also require non-resident vendors to collect tax
The provinces that levy their own PST also have laws requiring non-resident vendors to register to collect their taxes. British Columbia. Businesses must pay PST when they bring or send goods into B.C., or receive delivery of goods in the province that their business will use there, whether their business is carried on in B.C. or not.
Manitoba. Manitoba calls its PST the “retail sales tax;” vendors who sell goods or services within the province must register with the provincial Taxation Division and collect the RST; small businesses with annual taxable sales of less than $10,000 CAD are not required to register and collect the RST.
Quebec. Under rules that took effect in 2019, foreign suppliers or operators of digital platforms that distribute property or services may be required to register to collect the Quebec Sales Tax (QST), if they have sales over a 12-month period exceeding $30,000 CAD.
Saskatchewan. Businesses located outside Saskatchewan that make retail sales into the province are required to become licensed and remit the PST. This also applies to operators of electronic distribution platforms and online accommodation platforms, as well as marketplace facilitators.
U.S., Canada border adds its own complexity to sales
Of course, the fact that the United States and Canada are two different countries means there are many more factors involved before a U.S. company can start delivering products to Canadian buyers.
The Canada Border Services Agency identifies a six-step process for companies, which includes steps a business must take before they begin taking orders. This includes obtaining a Business Number issued by the Canada Revenue Agency for an import/export account, determining the country of origin for the goods a company wants to sell across the border, and determining whether those goods are subject to any permits, restrictions, or regulations on the Canada side.
Avalara AvaTax Cross-Border can help cut down on the complexity of complying with the import laws of Canada and other countries. Learn more about 10 import tax and duty mistakes you can’t afford to make.
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