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.

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Question - Should sellers with less than $30,000 annual worldwide business revenues register with GST/HST?

 

Answer - It depends.  There is no black and white answer to this question. 

 

In general terms, if you work on small gross margins and a large percentage of your sales are exported, it may be financial beneficial to register with GST/HST even if your sales are well below the $30,000 threshold. 

 

For example, a seller with sales of $10,000, $8,000 of which are exported, the GST/HST payable would be approximately $200 (5% to 15% of $2,000).  If the costs of goods are $6,000 and HST was paid at the rate of 13%, there would be ITCs of $780 leaving a net refund from the government of $580, even if the seller absorbed the tax on sales to Canada.

 

On the other hand if a large portion of the sales takes place within Canada with high gross margins (low cost of goods sold), the results may not be so beneficial.  With sales of $10,000 including $6,000 within Canada, the GST/HST liability (5% to 15% of $6,000) would be about $600 while ITCs on costs of only $2,000 would amount to $260 (using the same 13% rate) resulting in the seller having to send a cheque to the government for $340.

 

Please note that all amounts used in the examples above are approximate averages only.

 

As always, I strongly suggest you consult a competent professional familiar with your personal circumstances - and preferably experienced in mail order - to guide and advice you.

 

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Good of you to post this information here.  I think many new sellers who are serious about creating a business would do well to pay attention and follow up with more reading. 

 

I would add, for the benefit of those who prepare their own tax returns and do a fair amount of business outside of Canada, that CRA permits us to use a blended annual exchange rate for reporting purposes.  In other words, you don't have to laboriously convert every single item from $US (or whatever currency is involved) into $Cdn.

 

That rate can be found on the Bank of Canada website, here (the rate for 2014 should be posted there early in 2015): http://www.bankofcanada.ca/rates/exchange/annual-average-exchange-rates/.  It's a good idea for sellers to bookmark that page. 

 

Of course, individual daily and monthly exchange rates can also be found on the Bank of Canada site if needed.

 

Also, one question for you Pierre (you may or may not know the answer):  I understand that CRA looks for a small business to show a profit after a reasonable number of years (I don't know exactly what that number is), in order for that business to continue to be allowed to claim expenses, etc.  Obviously during the first few years of business, many owners will be spending money and recycling profits back into their enterprise in order to "grow" the business prospectively.  

 

However, I've never understood whether CRA's policy in this regard means net or gross profit, in other words, profit before any deductions or expenses, after cost of goods is taken into account but before expenses, or absolute net profit, after all expenses and deductions have been applied.  I would think many smaller eBay sellers are in the position of being able to apply deductions to generate a $0 (or minus) net taxable business income (net profit).   As I'm sure you know, use of home space and related expenses can only be deducted to bring taxable business income to $0, not below.  

 

Do you happen to know CRA's position in this regard?  I suppose I could slog through the CRA site, but it's so massive and would probably take hours to find the answer, so I thought I'd ask whether you had ever run into this information.  

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GST/HST/PST and INCOME TAX for eBay Sellers

PST in Manitoba.

 

I live in Winnipeg...

 

If someone sells less than $10,000 in value each year within the province of Manitoba.... one does not have to register and did not collect PST.

 

That rule came in a few few years ago

 

I am selling books which are PST exempt...... I paid no  PST to buy inventory... books.....  and I charged no PST when the book was sold to a Manitoba buyer.

 

I was de-registered. for sales tax in Manitoba....  no longer registered in relation to sales tax... PST within Manitoba.

 

The province worked on the principle that if I bought something where I paid PST  that amount paid was equal to the amount that I would have collected if a non-exempt item... such as art glass or pottery ... was sold to a Manitoba buyer.

 

 

 

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

CRA expects online businesses to be profitable on a net profit basis - as reported on line 135. 

 

While it is possible that unusual high start-up expenses may occur the first year leading to an actual loss (some of it deductible from other income) it is virtually impossible to run an online business on eBay at a loss year after year. 

 

Back in the days when I worked with a CA firm preparing bookkeeping and tax returns for small businesses, I cannot recall one instance of a trading business always losing money, year after year. 

 

I suspect that a taxpayer claiming such losses would attract an audit no later than the third year.

 

Keep in mind that online sellers have very few expenses other than fees which are a percentage of sales.  So it is difficult to imagine anyone showing losses, year after year. 

 

It is important to remember that some expenses cannot be claimed for tax purposes if the business manages to lose money. For example, home expenses (portion of exclusive occupancy attributable to the business, mortgage, rent, home insurance, utilities, etc...) cannot be claimed for tax purposes if they create or increase a loss. 

 

Also building inventory for future expansion is not a tax deduction.  Only the "cost of goods sold" can be deducted from sales, not the total purchases.

 

"recycling profits back into their enterprise"  is NOT a deduction for tax purposes.  The net profit is not based on the money withdrawn from the business.  If the online business makes $5,000 profit in any given year and the $5,000 is re-invested in more inventory to grow the business, that $5,000 net profit must be reported on line 135 and is still fully taxable.

 

" I would think many smaller eBay sellers are in the position of being able to apply deductions to generate a $0 (or minus) net taxable business income (net profit).  "

 

I frankly do not think so.  The question CRA would ask is: "What would be the point of spending ten or twenty hours a week running a small business on eBay if one does not make a net profit?"

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GST/HST/PST and INCOME TAX for eBay Sellers


@pierrelebel wrote:

 

"recycling profits back into their enterprise"  is NOT a deduction for tax purposes.  The net profit is not based on the money withdrawn from the business.  If the online business makes $5,000 profit in any given year and the $5,000 is re-invested in more inventory to grow the business, that $5,000 net profit must be reported on line 135 and is still fully taxable.

 

Yes, I do understand this, but I was actually thinking of investments in necessary capital purchases (equipment, computer, etc.) which, for a part-time business could contribute to reducing net profit considerably in the first few years (even if the claims must be made on a depreciated basis).  I suppose I was thinking more along the lines of a small manufacturer here which I suppose doesn't apply to the majority of eBay sellers. 

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Books  ... GST....  HST... PST

 

Books are exempt from PST in PST Provinces   and the provincial component of HST for HST Provinces.

 

Here is a link 

 

http://www.cra-arc.gc.ca/E/pub/gi/gi-065/gi-065-e.pdf

 

This is a super good explanation of the exemption rule...  

 

or

 

more specifically the  .....   Point-of-Sale Rebate on Books.

 

Point of sale applies to when a book is bought at a retail outlet... or from a seller on the internet.  The tax on books everywhere in Canada is 5 % 

 

such that GST = HST =5 % for books.

 

The tax is removed... or more specifically rebated when the book is bought.... Buyer never pays PST or the provincial component of HST

 

-------------------------------------------------------------------------------

 

There is another option  where a buyer of a book pays full HST when a book is bought... and then applies for a rebate...

 

as per the following information from that link...

 

The bookstore in Ontario collects 13% HST and does not pay or credit the rebate equal to the 8% provincial part of the HST at the point of sale. The consumer can file a rebate claim with the Canadian Revenue Agency (CRA) for an amount equal to the 8% provincial part of the HST paid to the bookstore.


The consumer can file a rebate claim.   Where the rebate application is filed on time, the CRA will pay the rebate amount to the
consumer provided that the total rebate amount claimed is more than $2.

 

 

This can put the buyer into a funk  as they pay full HST  and must apply to get a rebate......  The rebate must be more than $2.....  which is 8 % of $25.   But then if someone buys many books one can get  a significant rebate.

 

However,  for almost all retailers... B & M as well as internet....  the rebate is administered at the point of sale... and the buyer does not have to file with CRA for a rebate..... Makes a buyer more happy....

 

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GST/HST/PST and INCOME TAX for eBay Sellers

" thinking more along the lines of a small manufacturer..."

 

You are correct.  There are many types of businesses where capital expenditures and some expenses (advertising and marketing for example) may lead to repeated losses in the early years. 

 

However, when looking at a online trading business (selling on eBay), there is little that can justify losses year in year out.

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GST/HST/PST and INCOME TAX for eBay Sellers

One other point for newer sellers: In my opinion, if you're serious about running a business, one of the best investments you can make is in some basic accounting software (once you understand how to keep records and you've talked to an accountant).  

 

It doesn't have to be full-fledged corporate software with all the bells and whistles.  There are many to choose from, such as Quick Books, with different levels for different needs.  Most are pretty user-friendly and straightforward to learn and use.  

 

Three of the main advantages I see to these kinds of software are: 

 

1)  They allow you to track your profit (or loss) situation on a running basis, quarterly, month-by-month (or even day-by-day if you wish), so that you can make adjustments when you see trends occurring.  

2)  Having all your business data and calculations available in one place to be automatically generated into specific reports, profit and loss statement, etc. in a few clicks.  This is obviously valuable at tax time, but can be helpful anytime.  The time spent daily inputting the data is minimal, but the time and aggravation saved when those records need to be consulted or reports or analysis generated is huge. 

3)  Easy expansion if your business grows.  

 

Of course Paypal (and to some extent eBay) provide some of these records, but it's raw data only, not able to be manipulated in any way.  However, many home-business accounting software products will permit you to upload eBay/Paypal data in Excel or similar format, in bulk, saving you time in inputting the data. 

 

This sort of software may not be everybody's cup of tea, but it's something to consider if you're planning to be in business for some time to come. 

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Now... Let us throw a curve ball into the mix...

 

 

What taxes do I pay on Canada Post products and services?

 

More appropriately....  

 

How much  tax does a seller remit to the Canada Revenue Agency if the cost of postage indicated in a listing on eBay includes GST/HST?

 

 

Here is the link  to the appropriate Canada Post page on Canada Post's website.....

 

http://www.canadapost.ca/cpo/mc/personal/support/helpcentre/post_office/taxes.jsf

 

 

 

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

"How much  tax does a seller remit to the Canada Revenue Agency if the cost of postage indicated in a listing on eBay includes GST/HST?"

 

The amount of GST/HST paid at time of shipping has nothing to do with the amount to be remitted by the GST/HST registered seller.

 

A GST/HST registered seller needs to remit the appropriate amount of GST/HST based on the province of residence of the buyer.  For example, if the transaction is taxable and the buyer resides in Ontario, the seller must remit 13% of the total value of the transaction, including shipping.

 

Whatever amount of tax was paid by the seller equals the exact amount of ITC the seller is entitled to receive.

 

For example, a seller purchasing postage for a parcel going to the USA will be charged GST/HST if the postage amounts to less than $5.

 

That sellers does not have to remit anything to the government on that transaction but is eligible to receive full ITC for the amount paid.

 

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GST/HST/PST and INCOME TAX for eBay Sellers

A discussion such as this makes me rethink what I have been doing....

 

And then it ends up as a minor headache.

 

I look at

 

(1) Where I live ---Manitoba

 

(2) What I sell ----Books... and only books... and

 

(3) What are the postal services I use -----Canada Post lettermail and parcel services

 

Then... I plug in the right numbers in relation to these realities.... run through the basics of the calculations

 

And .....Finally... I conclude ... All is OK.

 

The main difference between me and most other sellers on eBay is what I sell ... books .....  and how GST and HST differs between books and postage......  and in relation to (1), (2) and (3).

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Thanks Pierre for posting this info.  Always helpful for sellers to have as much tax info and GST info as possible to avoid tax time headaches!

 

***Also if anyone has suggestions for sellers regarding what types of accounting software (installed or cloud based) / programs / links to Excel templates etc they recommend or find are easy to use (including for payments received in multiple currencies -both US and Cdn) - that info would be helpful information to post for those of us doing our own bookkeeping or considering it.

 

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GST/HST/PST and INCOME TAX for eBay Sellers

Thanks for your information. I am a Canadian resident and I run a business on ebay.com. I have some questions. For example, the total sales amount is $10,000 which include $2,000 to Canadian buyers and $8,000 to other countries buyers. 1) Here is no HST/GST tax on $8000, right? 2) If the goods are located and shipped from Japan, not from Canada. Do I need to remit GST/HST for the $2000 (shipped to Canadian buyers)? 3) The taxable sales $30,000 means HST/GST taxable sales, right? For example. if the sales amount is $50,000, but the sales amount to Canadian buyers is $5,000. Here is no necessary to keep the HST/GST account, right? I am thinking of cancelling the HST/GST account. Thanks
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GST/HST/PST and INCOME TAX for eBay Sellers

". Do I need to remit GST/HST for the $2000 (shipped to Canadian buyers)?"

 

Only if you are registered with GST/HST

 

If you are not GST/HST registered (worldwide revenues (including shipping charge) below Cdn$ 30,000, you cannot charge tax nor remit it.

 

"taxable sales $30,000 means HST/GST taxable sales, right? "

 

No.  The Cdn$ 30,000 treshhold represents Cdn$30,000 in worldwide revenues (including shipping charges) whether sold domestically or exported.  Only the portion sold domestically attracts GST or HST (rate depends on province of buyer).  Taxable goods sold outside Canada are taxed at the zero rate (0%).

 

"For example. if the sales amount is $50,000, but the sales amount to Canadian buyers is $5,000. Here is no necessary to keep the HST/GST account, right? "

 

As stated above you must be GST/HST registered if your worldwide revenues (including shipping charge) exceed Cdn$ 30,000

 

"I am thinking of cancelling the HST/GST account."

 

This would suggest you are already GST/HST registered and, as such, must remit GST/HST based on your taxable sales made within Canada. It does not matter if you collected the tax from your buyers, you are legally required to remit it.

 

If and when your annual revenues drop below Cdn$ 30,000 and you want to deregister from GST/HST, you will be obligated at that time to pay GST/HST on your entire unsold inventory.

 

I strongly recommend you consult a competent accountant, experienced in worldwide mail order (most are not) and GST/HST and familiar with your personal circumstances.

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GST/HST/PST and INCOME TAX for eBay Sellers

" If the goods are located and shipped from Japan, not from Canada. "

 

If shipped directly, from outside the country (dropshipping) the GST/HST on those taxable goods will be paid by your buyers at time of Canada Customs clearance.

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Thanks a lot.

 

 

" If the goods are located and shipped from Japan, not from Canada. "

 

 

"If shipped directly, from outside the country (dropshipping) the GST/HST on those taxable goods will be paid by your buyers at time of Canada Customs clearance."

 

 

Does that mean I don't need to remit the GST/HST tax if the goods are shipped from outside Canada? Because the buyers are going to pay the customs.

 

 

Actually I have contacted with the accountants. But I got different answers. 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. And also some accountants said that they don't know. That makes me headache.

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GST/HST/PST and INCOME TAX for eBay Sellers

The next step is to contact the Canada Revenue Agency (CRA).... about this GST/HST question

 

Link to a  page of Contact telephone numbers....

 

http://www.cra-arc.gc.ca/cntct/phn-eng.html

 

----------------------------------------------------

 

Any purchases from outside of Canada are defined as imported goods....

 

and if  those goods have a certain value then GST/HST is collected  when the item crosses the border....

 

This gets complicated... as to who should collect the GST/HST.

 

I have seen parcels from the US that already have the GST/HST paid... The parcel would be labelled as such.

 

In this situation it is not you who shipped the parcel to Canada.....  and  the process  may get complicated if you collect the GST/HST and have the shipper make note of this on the parcel.....GST/HST paid

 

and in your situation this is why the buyer should have to pay GST/HST when the parcel crosses the border....into Canada.

 

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Accountants might know one view of things.....  and if an accountant makes a mistake... it is the seller that will be in trouble, not the accountant.... It is because of this reality that a seller must know what the applicable rule is in their situation.

 

and it is because of this that one must contact CRA .... to clarify the situation

 

 

Sometimes it is the seller that has to point the accountant in the right direction....  and who the accountant should contact at CRA

 

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Owners of small businesses do their own calculation... Large businesses hire accountants  for their own use...

 

 

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GST/HST/PST and INCOME TAX for eBay Sellers

If you are based in China... and purchases are shipped from Japan.....  

 

You are not doing the shipping..... 

 

In such a situation... Buyers would pay GST/HST.....  when the purchase crosses the border into Canada.

 

This would be  my approach to this situation... my preferred option

 

------------------------------------------------------

 

If you as the seller are  doing the shipping  and handling the parcel........  and .marking the parcel as GST/HST paid. using an appropriate and official label.....   then this  is an option where you could collect and remit GST/HST.

 

However, it would appear that you do not have any contact with a parcel. going to Canada .. and as a consequence are not able to add this GST/HST paid label to a parcel.

 

If you are collecting GST/HST then you must be registered with CRA...  

 

---------------------------------------------------

 

Here are the two options....  contact CRA  to verify that you have to collect GST/HST... as applicable to your specific situation....

 

I have my view of things  ... let us see what CRA says.....

 

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GST/HST/PST and INCOME TAX for eBay Sellers

"Does that mean I don't need to remit the GST/HST tax if the goods are shipped from outside Canada?"

 

Yes.

 

" I have contacted with the accountants. But I got different answers. "

 

This is why I suggested you contact a competent accountant familiar with GST/HST and worldwide mail order.  Not easy to find.  Those without that experience may confuse the need to report income and pay income tax on those foreign sales with GST/HST reporting.  Two totally different things.

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