GST/HST/PST and INCOME TAX for eBay Sellers

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.

 

Message 1 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

Hi Pierrelebel,

 

I have a bunch of questions, if you could answer some or all of them that would be very helpful.

I recently started a small business as a sole proprietorship and I need to file my taxes.

 

1. Do you know which forms I need to fill out (I really need help on this)? As well, would I submit my personal income tax with my small business income tax forms?

 

2. When calculating the cost of goods, I purchased many card collections which I assume would be my cost. How would I show proof of my costs (most of these are through paypal and don't have an invoice or anything).

 

3. Would I be able to claim postage/shipping costs as an expense as long as I have all my receipts? Do I need receipts for all my expenses?

 

4. I pay GST/HST payments quarterly do I need to add these anywhere to the forms or are those just separate and completed? Do I need to take that into account in my P&L?

 

5. When doing my P&L would I add in GST I charged or would I leave that out?

 

6. You seem very knowledgeable would you be able to help me out with my taxes for a fee? I've been trying to find someone to help me on Kijiji and other areas but no one is really familiar with eBay.

 

Thanks a lot!

Message 41 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

"which forms I need to fill out"

 

You can use a P&L statement similar to the sample linked in the original post

 

Enter your gross revenues (sales and shipping/handling charges) on line 162 and the net profit on line 135 
Attach a copy of your P&L to your tax return and keep all your receipt.

 

"How would I show proof of my costs "

 

You should maintain a journal (or schedule) of all your purchases (date, seller, short description, amount paid, method of payment). If you get tax audited (I have been twice) the auditor will access your PayPal account for verification.

 

"and don't have an invoice or anything"

 

Actually you get an invoice or receipt of payment every time you pay through PayPal.  Print a copy and keep in your records.

 

"Would I be able to claim postage/shipping costs "

 

Yes, of course

 

"Do I need receipts for all my expenses?"

 

Yes.  If no receipt is available, make a journal entry with all details (date, supplier, brief description, amount paid, method of payment)

 

"I pay GST/HST payments quarterly do I need to add these anywhere to the forms or are those just separate and completed? "

 

GST/HST require a different report, as you already know.  Just make sure that all your purchases and expenses are calculated NOT including the GST/HST since the tax is claimed as an Input Tax Credit (ITC).  For example, if Canada Post charged you $11.30 to ship a parcel within Canada ($10.00 + $1,30 HST) you can only claim $10.00 as an expense.

 

Now - and this is important for all other readers who are NOT registered with GST/HST - in this example you would claim an expense of  $11.30, including GST/HST

 

"When doing my P&L would I add in GST I charged or would I leave that out?"

 

Leave it out.  GST/HST amounts (in or out) are is in a "suspense" account for bookkeeping purposes.  It has NOTHING to do with your Profit and Loss Statement.

 

"...help me out with my taxes for a fee?"

 

The last time I worked with a firm of CAs preparing small business taxes was in 1988.  Now retired. Sorry.  I am confident you can find a knowledgeable and competent accountant in Calgary, preferably someone experienced with mail order.

 

Good Luck

 

 

 

 

 

Message 42 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

Okay thanks for the response.

In terms of all the Receipts and Journals do I keep these in case I get audited or do I send them with my T1?

Thanks
Message 43 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

As well, in terms of filing period. Would I be doing sales up to the end of the calendar year. Or the end of the fiscal year?

Message 44 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

"up to the end of the calendar year. Or the end of the fiscal year"

 

KISS

 

As an individual (not incorporated), you should maintain the same year end: December 31st.

 

And yes you should have a file folder (or many with a large rubber band) with your tax return, all all the schedules and receipts pertaining to your business.

Message 45 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

In terms of initial inventory would this be a possible estimate?

My stock consisted of all the cards I owned before the game but I did not have a solid value on this and rather a ballpark value.

Should I report the estimate or just leave that out of the tax report?

 

Message 46 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

This is such great information, I really appreciate this thread!  Smiley Happy

 

I'm a brand new seller and have been doing my very best to read up and educate myself on the business but I am very hesitant to sell on ebay.com because I'm unsure of the possible implications from the IRS.   I am interested in dropshipping to U.S. and international customers via ebay.com... I would be mostly dropshipping from U.S. companies and a lot of my customers would be in the U.S.  I fully understand that I must report all income on my Canadian taxes and would definitely do that, but what worries me is whether I will open myself to being considered a "U.S. person for tax purposes" by the IRS if I am dropshipping from the states to customers in the states.  I really really want to hear from Canadian sellers who are selling items sourced in the U.S. to U.S. customers as to their take on this and how they proceed.

 

Thanks so much!

 

🙂

Message 47 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

I may be a bit out of date on this, but for the IRS to go after you, you have to have a "Nexus" in the United States, or be US Citizen residing in Canada. "Nexus" is a fancy term that apparently means you have an actual physical presence in the US, or own a plant or office in the US, etc. While the IRS may be aggressive so far they have not tried to go after Canadians working and living in Canada ( UNLESS they are US Citizens).

 

As for valuing inventory tax auditors will not question the inventory figure unless they think there is something "fishy" about it. If you can justify the figure they tend to accept the figure. They will look to make sure all sales have been reported, and at expenses , ie You can not write off  a visit to "Happy Fingers Massage Parlour" as a business expense. 

 

When the auditor comes calling, be polite, but be quiet, and answer only questions asked. If CRA don't ask, don't answer. If you do get audited pray for an auditor with some gray in their hair, and some "real life" experience. IT is not a lot of fun but its not the end of the world.

 

I have been audited for Income tax 3 times so far and the score is CRA ( It was National Revenue then)1, Me 2.

Message 48 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

"I have been audited for Income tax 3 times so far"

 

Ditto

 

"and the score is CRA ( It was National Revenue for one of them long time ago) 0, Me 3. Smiley Happy

 

While the score is in my favour, nothing makes up for the frustration of a long tax audit.

Message 49 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

"interested in dropshipping to U.S. and international customers via ebay.com... I would be mostly dropshipping from U.S. companies and a lot of my customers would be in the U.S."

 

While this comment has nothing to do with the tax aspect of your operations, I most strongly recommend against it.  You will most likely find it a waste of time and effort. 

 

"...really want to hear from Canadian sellers who are selling items sourced in the U.S. to U.S. customers..."

 

Unfortunately you will not hear from them as, as far as i know, few if any Canadian exist with a profitable US dropshipping business on eBay..

Message 50 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

The only place that makes money dropshipping is the wholesaler that does the actual shipping and stock handling. After all, he, she or it has foisted off most of the advertising expenses and customer handling expenses on to the starry eyed newbie seller, and probably offered to point out where to advertise ( and they probably get a cut on this). Does not seem to matter  what country you operate in but drop shipping is not a way to get rich.

Message 51 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

I stumbled on this thread and am finding it somewhat incomprehensible that with all the headaches of selling on Ebay sellers would actually want to spend hours of valuable time figuring out how to pay the government tax. What tax?

Message 52 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

"What tax?"

 

If your worldwide sales are Cdn$ 30,000 or more, you must - by law - register with GST/HST and collect GST/HST on your taxable Canadian sales and remit such amounts to the federal government.

 

Many GST/HST registered sellers in fact do not collect the tax from Canadian buyers but absorb it.  They still must remit it to the federal government.

 

If your worldwide sales are below Cdn$ 30,000 you do not need to worry about it. You pay tax on your purchases (the government is happy) and that is the end of it.

Message 53 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

If  a person wants to sell on eBay as a business sooner or later that person is going to have to contend with taxes, both income tax, and sales tax ( GST/HST).  Pierre recommends talking to an accountant that has experience with mail and internet sales and he is right with that advice. A person can try to ignore taxes but sooner or later CRA will catch up, and ehn they do it will not be pleasant.

 

I have another business, operating a taxicab. I have to charge my drivers HST, and part of what they collect from the meter is HST which they are supposed to remit. A driver that I know is now trying to figure out how to pay the 30,000 + that CRA says the driver owes for unremitted HST. When CRA starts nosing around they have the power to say that " that you made X $ driving, and our cut ( HST) is $Y - Pay up' A person can dispute CRA's assessment, but the rules say that you pay then dispute. When things get to that point CRA can clean out a person or businesses bank account. They can issue what they calla third party demand ( may not have the exact term right) where they find out who owes you money and they instruct that person to send the money to CRA. 

 

I will agree with anyone that says handling HST/GST is a pain in the butt, but take the time to understand it, set things up to handle it, and aside from a possible audit from CRA life will be much easier. 

 

A final note about HST/GST. I sell stamps mainly outside Canada where I do not have to collect HST, and buy much of my inventory in Canada where I have to pay HST. When I fill out my HST return I often have paid more in HST than I have collected. When that happens the Government pays me the difference ( albeit slowly). If a vendor is selling mainly outside Canada it is often worthwhile to have a HST/GST number.

Message 54 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

If your worldwide sales are below Cdn$ 30,000 you do not need to worry about it. You pay tax on your purchases (the government is happy) and that is the end of it.

 

Whew!...That's good to know...I've been on Ebay for 14 years under different names. Never came close to that amount  but I guess my future cap is $29,999!

Message 55 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

Some very interesting info on HST - thanks to all who have shared......I too have recently registered and  Monday is my day to call the CRA and try to get clarification on some of the finer points.  I'm not disputing  the info here, but I find it hard to grasp the concept that I need to charge my Canadian buyers HST on the TOTAL SALE.......is that not double taxation since the buyer has already paid the applicable tax on the postage that is charged , therefore only need to be charged tax on the item price?

 

My second question deals with the information that a seller in one province must charge the sales taxes in accordance with the location of the buyer.  I have read the info doc that I downloaded from the CRA website and the way I interpreted it was that tax is charged at the point of purchase.......ie, I'm in Ontario, therefore the Canadian buyer will pay the sales tax of Ontario.......no different than a BC tourist walking in to a store in Toronto - he would pay the HST as it is in Ontario at the cash register.

 

Sorry if I sound thick, but are you saying that for my ebay sales, as an Ontario seller, I charge a Manitoba buyer the sales tax that they would pay if they bought that item in Manitoba?    If so, I assume that all of you check the tax box for every province and territory in you ebay preferences for taxation and let the ebay program calculate the tax due.

 

Thanks for any additional clarification.

Message 56 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

No need to call CRA!

 

Question 1 - Buyers "buy" postage from the seller not from Canada Post. Buyers pay whatever tax the sellers charges, there is no double taxation. Perhaps you need to study the GST/HST information about Input Tax Credits and how they work.

 

Question 2 - You charge tax at the rate based on the place of delivery not the place of shipment. The buyer is located at the place of delivery so you charge the rate for their province.

 

 

 

 

 

 



"What else could I do? I had no trade so I became a peddler" - Lazarus Greenberg 1915
- answering Trolls is voluntary, my policy is not to participate.
Message 57 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

Taxes are applicable to goods and services, hence you charge taxes on shipping as well as the item price.

GST/HST you have to charge based on the delivery address. If you are located in a province that has PST and ship to a buyer in your province, you charge GST and PST. This being based on the threshold where collection becomes mandatory. If you are doing a suitable volume of business you'd want to register and claim your input credits.
Message 58 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

For each transaction the seller receives the price for the sold item plus postage for a buyer.

 

Seller then pays for the postage..... 

 

The total of $30,000 includes the price of each item PLUS postage.

 

Total sales worldwide may not exceed $30,000.... but in today's world with the cost postage... as charged by Canada Post.... the total value of all transactions  and all postage paid by buyers.... can be higher than $30,000 very quickly.

 

Worldwide includes Canada, US and International  item price plus the cost of postage...  The cost of postage is what the buyer pays  and not what is paid to Canada Post.

 

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Also....

 

I sell books...

 

For books GST = HST = 5 % for all books sold to buyers in all provinces in Canada.

 

For HST  provinces  the provincial component of HST is  given as a ... Point-of-Sale rebate... Buyer never pays the provincial component....of HST.

 

Then .....For lettermail the charge for GST/HST varies by province of ... origin... from where it is sold/mailed ... For me that is Manitoba...and is 5 % even if the lettermail parcel is to an HST province ....and this charge of GST/HST differs among provinces.

 

With free shipping...  price as item plus postage... for books  ....GST = HST =5 % for the complete value, item plus postage... and there is no separation between price of the book and associated  postage...

 

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For parcels charge for GST or HST is based on destination....

 

and to make it more complicated....  the application of GST or HST  differs between Canada Post options for  mail... Regular Parcel versus Expedited parcel to Ontario... as an example.

 

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The application of GST or HST can get complicated  and it took me a while to learn the subtleties.... Fortunately with each learning step    I improved my calculation of GST and HST owed  and never paid less than I should have paid....  In the early days it was always "more" reimbursed to CRA  than in later years... after the complications were sorted out.

 

Find the primary document  and then other associated information on the CRA website... and consult, consult  this document ... read, read and read.....with each learning step..

 

Time always helps the learning curve.

 

 

 

 

Message 59 of 130
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GST/HST/PST and INCOME TAX for eBay Sellers

Thanks so much for the info..........this will certainly increase the overall cost to my buyers.........and I'm sure will result in a decrease in sales.......

US sales are down despite the advantage they have with their high dollar - it is impossible to compete on postage with items shipped within the US.......international sales are down since I have removed  small parcel ground as an option due to constant complaints after a few weeks that the package has not arrived.......now domestic sales will take a hit.

 

Getting harder every year to make ebay worth the time and effort.  My choice so time to just suck it up!

 

Again, thanks for the help.

Message 60 of 130
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