CRA (Canada Revenue Agency) has developed an explicit requirement where online entrepreneurs need to report all websites that are involved in eCommerce activity. There are issues with eCommerce owners understanding about the tax obligations while they are selling online in Canada and outside Canada (Other countries). This became one of the challenges for eCommerce owners to understand and comply with tax regulations and practices. When an eCommerce activity happens at the international level the online store owner comes under tax jurisdictions of those countries. There are Tax conventions that are easy to understand and clear the confusion.
These Tax regulations tell eCommerce owners to collect the additional amount from customers and pay them to the government. This additional collection of the amount called sales taxes. There are tax slabs defined by the Govt which varies from province to province.
There are some Canadian provinces where eCommerce owners do not require you to collect sales taxes if their sales are lower than a certain threshold (e.g. British Columbia or Manitoba have a $10,000 threshold for small suppliers). However, the Federal government and Quebec have a CAD $30,000 threshold that defines for some small suppliers. (Source https://baranovcpa.ca/)
In Canada, there are two types of taxes. I.e. GST tax rates for Canada and PST tax rates for Saskatchewan. Nowadays it has been seen that tax rates and regulations keep constantly changing due to changes in the definition of sales tax nexus. So, for an eCommerce owner, it is a hard time to track all this and manage the Taxes rules.
While in Canada new Quebec Sales Tax regulations that are coming to effect in January 2019, obligate out-of-province sellers and out-of-country to collect provincial sales taxes (QST) on sales of goods and services.
Canadian Sales Tax Regulations for eCommerce Sellers
In Canada, any business or company is obligated to collect sales taxes in case if they are: –
Setting up a business in Canada (i.e. If the company is in Canada, using Canadian warehouses, infrastructure, having some physical presence, etc.)
Not a small supplier (defined as having sales over CAD $30,000 in the last four quarters)
If the company is Selling taxable supplies (most goods and services fall under this category; limited exceptions include medical services and supplies, toll/fairy charges, daycare services, etc.)
In Canada, the sales taxes are divided into two categories: The Provincial and the Federal. Depending on the place of business and service or product delivery what type of taxes are to be collected is determined.
Post registering yourself for sales tax accounts in Canada you can also claim Input Tax Credits (ITC) on sales taxes that you paid on your expenses. This is specifically done to prevent the accumulation of sales taxes along the supply chain.
If you are running your eCommerce online store on Magento, then it is very important for you to set up the tax rules and rates as per Canadian Tax regulation. Knowing this pain of the eCommerce store owners on the Magento platform we have given stepwise guidelines below to set up and configure GST and PST taxes in Magento 2.
Configure Canadian Tax in Magento 2
Step 1: Accomplish the Tax Calculation Settings
- In Admin Panel select Stores > Settings > Configuration.
- Select Tax under sales on the left panel.
- Based On the field, allow calculating the tax on Total value of the order.
- Select Shipping Address option
- Choose excluding tax from the drop-down menu.
- Select Custom Price in the Apply Tax On-field
- Now Open the Tax Classes section, set the Tax Class for Shipping to shipping.
- Expand the Default Tax Destination Calculation section,
- Set the Default Country
- Set Default State to where your business is based.
- Set the Default Post Code to the number range according to the state you have set.
- Next, Open the Shopping Cart Display Settings section.
- Set Include Tax in Grand Total to Yes.
- Set Display Full Tax Summary to Yes.
- Set Display Zero in Tax Subtotal to Yes.
- Now, Open the Fixed Product Taxes section
- Apply the FPT for the Canadian Tax and then Choose YES.
- Select Including FPT and FPT description
- Now Agree with Apply Tax to FPT and select Yes.
- Set Include FPT In Subtotal to No for the Canadian Tax.
Step 2: Configure Canadian Goods & Services Tax (GST)
Now insert GST into the name of applicable tax rates this will display the GST number on the invoices as well as other sales documents.
- In Admin Panel choose Store > Taxes > Tax Zones > Rates.
- Now select Add New Tax Rate.
Step 3: Configure the Canadian Provincial Sales Tax (PST)
Create another tax rate for the applicable province
- Go to the Add New Tax Rate information.
- Enter the Tax Identifier by Canada-SK-PST.
- In Country field select Canada
- Select Saskatchewan for the Sate field.
Step 4: Add a GST Tax Rule
It is important to set different priorities for each rule and Calculate off subtotal only checkbox. Each tax appears as a separate line item, but the tax amounts are not compounded.
- In admin panel select Stores > Taxes > Tax Rules.
- Choose the Add New Tax Rule button and fill out the necessary information.
- Set Name to Retail-Canada-GST
- Set Customer Tax Class to Retail Customers
- Select Taxable Goods in the Product Tax Class field.
- Choose Canada-GST to offer the tax rate.
- Set Priority and Sort Order to zero.
- Mark the Calculate off subtotal only checkbox.
Step 5: Add a PST Tax Rule for Saskatchewan
- In this make sure that the priority is empty and the Calculate off subtotal only is selected.
- Go to the Add New Tax Rule
- Set Name to Retail-Canada-GST
- In Product Tax Class Field Choose Taxable Goods
- Select the Canada-SK-GST
- Set Priority to 1. Mark the Calculate off subtotal only checkbox.
- Sort Order.
Step 6: Save and Test the Results
- To complete save the configuration to complete.
- Access your storefront and check it by placing an order for demo.
We hope that the above guidelines work the best for you. We help you get the best out for your e-commerce business.