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Canadian sales tax for U.S. sellers

Canadians love to buy American: 9.2 million Canadians ordered from U.S. ecommerce businesses last year. There’s even a website devoted to helping Canadians buy U.S. goods. For U.S. based ecommerce sellers, Canada is a great market expansion opportunity. With that opportunity, however, comes the responsibility to understand Canadian sales tax.

Canadian sales tax basics

To understand whether you need to collect and remit Canadian sales tax, it’s helpful to have a basic understanding of how the Canadian sales tax system operates.

Canada’s sales tax system is less complex than that of the U.S., but it’s still far from simple. There are no local Canadian sales tax rates, only national and provincial. To understand Canadian sales tax, you need to know about three things: GST, HST, and PST.

Canada’s national Goods and Services Tax, or GST, is a flat 5 percent from coast to coast. Some provinces and territories don’t add a local sales tax, so the sales tax rate is the 5 percent GST.

Some provinces add their own tax on top of the 5 percent GST, via Harmonized Sales Tax, or HST. The HST ranges from 13 to 15 percent. The nice thing about HST is that you can remit the whole amount to the Canada Revenue Agency (CRA), so you only have to deal with one tax collection agency.

British Columbia and some other provinces charge a Provincial Sales Tax, or PST, on top of the GST. In PST provinces, sellers required to collect and remit Canadian sales tax must also register with the province and remit the PST separately from the GST.

No Nexus in Canada

Canada doesn’t have nexus rules for ecommerce sellers: If you are required to collect and remit Canadian sales tax in one province, you are required to collect in all of them.

It would be impractical to make every ecommerce business that ships even one package into Canada register to collect Canadian sales tax. Canada recognizes this. Canada is, after all, a sensible country. That’s where the small supplier exception comes in.

Exceptions to Canadian sales tax

Canadian business owners with gross revenue of less than $30,000 CAD per year don’t have to register to collect and remit GST or HST. The same small supplier exception applies to U.S. sellers who ship less than $30,000 of orders into Canada.

There’s one big caveat: The small supplier exception does not necessarily apply to the PST. Rules vary from province to province. Some provincial governments seem to feel that everyone who ships even one order into that province needs to register to collect and remit the province’s PST, even those that don't have to collect GST. To get around this, you could refuse to ship orders to the provinces that add PST.

As in the U.S., some goods and services are exempt from Canadian sales tax. Canada calls these “zero-rated” items. If you’re selling items from the list of zero-rated goods, you don’t have to charge Canadian sales tax.

No matter how few orders you ship to Canada, you will need to include a customs form with each one. If you ship via USPS, you can fill out the form online or at the post office. Many orders shipped to Canada will not be subject to duty or customs fees. Be aware, however, that if a fee is due and you don’t pay it up front, your customer could be asked to pay it when they receive their package.

Avalara Author
Laura McCamy
Avalara Author Laura McCamy