If you sell your own used personal items on eBay (and elsewhere) this thread is not for you. Sales of used personal items are generally not taxable.
Here is a quick summary of taxation rules in Canada as they apply to sellers who purchase goods for resale. It does not really matter if you sell online or through a brick and mortar store or both. Since you are in fact running a business (buying and reselling for the purpose of making a profit) your activities are subject to taxation.
Unless you have strong bookkeeping skills and knowledge of taxation laws, I strongly recommend you hire a competent accountant familiar with your personal circumstances – preferably one with experience in mail order business - to assist you in setting up your books properly and arrange registration with the tax authorities if required.
GST/HST/PST
If your annual worldwide business revenues (including shipping charges) exceed Cdn$30,000, you must, by law, register with GST/HST. For the purpose of registration, it does not matter if most of your sales are shipped outside Canada.
Start learning about it here: http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/menu-eng.html
After you have read the information in that link, please read again. It is important to understand the concept and its applications.
Once registered with GST/HST, you must remit the tax (GST or HST) based on the province of residence of the buyer, regardless of where you are located in Canada. For example, if you ship to a buyer in Ontario, you will have to remit 13% HST of the transaction value. If your buyer is located in Alberta or Manitoba (for example), you need to remit 5% GST since Alberta and Manitoba are not HST provinces.
Whether you actually charge the GST/HST or absorb it is up to you. Many GST/HST registered online sellers absorb the tax to remain competitive with the majority of sellers who are not GST/HST registered. In any case, the tax must be remitted. To be candid, that is all the government cares about: getting the tax from you. They do not care if you collect it or not!
If you decide to charge GST/HST to your Canadian eBay buyers, in fairness, I strongly suggest you clearly state that fact in your listings. Most Canadian buyers expect their purchases from Canadian sellers on eBay to be tax free and some will even post negative feedback when charged tax unexpectedly.
While you are obligated to remit GST/HST payable, you also get the benefit of receiving Input Tax Credits (ITCs) on the tax you have paid at time of purchasing your inventory or when paying for the many services and expenses related to your business. ITCs are credited to you regardless where the goods are eventually shipped.
NO GST/HST should be charged or needs to be remitted for goods exported from Canada.
As far as PST is concerned, provinces that are not HST provinces have different rules and you should consult the tax authorities of your province (BC, SK, MB, QC) to understand your liabilities and responsibilities.
INCOME TAX
That is pretty simple. All Canadians are required to report their net business income (profit) and add it to other income (employment, pension, investment, etc…) to eventually arrive to taxable income.
There is no minimum, no exception, no exemption. All net profit must be reported starting from the first dollar.
To calculate your net profit, add up your revenues (sales, handling and shipping charges) for worldwide proceeds and deduct your cost of goods sold and business related expenses.
All amounts must be calculated in Canadian dollars. If you purchase and resell in a foreign currency (US$ or others) you need to convert those amounts to Canadian dollars prior to presentation on your Profit and Loss Statement.
If you are GST/HST registered, the tax charged or paid should not be included in your numbers, if you are not GST/HST registered, then the tax paid should be included in your purchases and expenses.
Only the net profit is added to your other income on your tax return (line 135).
For the benefit of online sellers, I prepared this sample Profit and Loss Statement a few years ago, Feel free to use it and/or modify it to your specific needs:
http://www.pierrelebel.com/lists/P&L-sample.htm
CRA provides similar forms for your convenience:
http://www.cra-arc.gc.ca/E/pbg/tf/t2125/README.html
If you have any questions on the subject, please post them here, on this thread.
cumos - read post #14 "I am a Canadian resident "
My comments were based on that information.
It is not easy to get the right answer from a CRA agent on the telephone unless all your personal information and circumstances are available to the agent.
Often the correct answer depends on the context.
For example:
Q - "I ship from Hong Kong directly to buyers worldwide. Do I need to register with GST/HST, collect and remit tax for Canadian residents?"
A - No (and that is the correct answer)
Now let us add some information to the question:
Q - "I am already registered with GST/HST having imported goods from Japan and China for resale in Canada. Should I cancel my GST/HST registration if I ship directly from overseas to worldwide customers?
A - It depends. Do you still have inventory on which ITC has been claimed? What is your worldwide level of revenue (including shipping charges)?
The example above is meant to illustrate how difficult it may be at times for CRA agents to give the right answer since they generally do not have all the information. They need context.
This is why I always recommend asking a competent accountant with experience and expertize in international mail order and GST/HST and familiar with your personal circumstances.
"One accountant said that I need to remit the GST/HST even the goods are shipped from outside Canada because I am a Canadian seller. Another one said that I don't need to do so. "
The first accountant was wrong. Period. Most likely does not have experience in worldwide mail order and does not understand how GSt/HST applies in those circumstances.
The second accountant was correct.
From my perspective, If you are currently registered with GST/HST and no longer ship from within Canada and no longer have any inventory on which ITCs were claimed, you should cancel your GST/HST registration - subject to the approval of your competent and experienced accountant.
Now, whether registered with GST/HST or not, it does not change your liabilities as far as Canadian federal and provincial income tax is concerned. All net profits must be entered on line 135 of your annual tax return and added to your other income (employment, investment, pension, etc...) to arrive to your taxable income.
"worldwide income."
Actually, GST/HST is based on total worldwide gross revenues, not net income.
I realize the two words are often confused with one another. Even the tax department keeps using the word "income" when they mean "revenue".
Line 135 is on the income tax form, not the GST/HST report form.
As a stamp dealer for the last twenty-five years, most of my sales (revenues) were generated outside Canada. When filing my GST/HST return, I typically would have large revenues on 101 but small taxable revenues for sales made within Canada.
After factoring ITCs, the government would send me refund cheques year after year. Them were the "good old days". Now retired, I miss those big fat annual cheques!
Yes, that is what I did. And I guess that is why CRA sent me a GST/HST review letter to ask me to explain why the amount on line 101 is high but the amount on line 105 is low. Have a great day.
I had that same question during a GST audit about 10 years ago and before that for an Ontario PST audit years before that.
My answer to the GST guy "98% of my sales are outside Canada".
My answer to the PST guy "I sell of lot of "these" which are not taxable.
Both were completely satisfied with those answers without any supporting evidence. Of course if they had wanted supporting evidence I would have had plenty to give them.
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