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.
"With all the rounding up done on the taxes for every transaction, since we are billed every month, do we end up paying more than we should?
I guess my real question is why doesn't ebay add up all the fee's at the end of the month, then charge the proper taxes when they send us their bill? Yes it only pennies involved, but every one counts imho."
Why are taxes calculated on each transaction instead of monthly? Only eBay can answer that question. However, at the end of the month, it makes no difference at all.
Take a few minutes to review and calculate the taxes charged by the government on your fees. Add up all charges and calculate the tax rate (GST or HST) applicable to your province. Bingo.
For example, let us say you have a charge for $0.35 on which, if you live in BC, you will be charged $0.02 GST (5%). Actually you are charged $0.0175 but the amount seen on the invoice is rounded to the nearest penny (standard for all businesses)
Now let's say you have 100 identical charges for a total of $35.00 all of which show $0.02 tax.
Look at the total. You will see $36.75 representing $35.00 charges and $1.75 (5%) tax. Magic!
How is that possible? eBay calculates each charge with six decimals although each is expressed with the (rounded) two standard decimals. At the end of the month all charges and taxes are added (at six decimals) and only the total is rounded.
"I know that all sellers who have a store and pay a monthly fee, now have GST/HST added to the invoice."
Not quite. Since July, Canadian taxes (GST or HST) are charged by the Canadian government on ALL fees, regardless whether one has a store or not.
"so after shipping an item(s), I generally pay my bill."
If I may be candid, that is not a good idea. You are looking at a nightmare at tax preparation time.
KISS
Have eBay bill your credit card once a month. Use a credit card that gives you rewards (like BMO MasterCard with AirMiles). You get rewards on your eBay fees! Or use a card with cash rebates. You will get 1% (or more) rebate on your eBay fees.
Easy to handle at tax time: add up the eBay charge on all twelve monthly statements. Piece of cake.
" Also most of my sales on ebay are to the US."
That is an excellent reason to register with GST/HST/
As a registered seller, you only remit GST/HST on your Canadian sales. USA and overseas sales do not require GST/HST. However, you are eligible to Input Tax Credit (ITC) for ALL (100%) of the GST/HST you paid on your business related expenses and purchases, even those related to sales outside Canada.
easyco69 - "why would i trust you?"
Interesting question. The information provided on this thread is meant for Canadian sellers. I do not see any listing under "easyco69" since you registered on eBay over 15 years ago.
Also, this is an old thread and I am curious as to which comment you are referring to.
Featured Posts
