Virtual stores are the latest trend, as they are an easy way to do business without the need to have a physical shop. With a virtual store one can reach out to a vast audience beyond where the store is located. However, while planning to operate an e-commerce business and sell online, one needs to comply with the various provincial and territorial regulations where the business is being conducted in Canada.
These regulations may be enforced even though the store may not have a physical address in the other provinces or territories in which it sells. Additionally, the online business owner needs to be aware of the rules and regulations associated with selling products to customers in different parts of Canada as different regulations may apply in these regions for e-commerce, online sales contracts, or other online sale transactions and advertising.
Here is a brief overview of the points to keep in mind while starting an e-commerce business in Canada.
Incorporation
Like any other physically existing business, an e-commerce business may need to be incorporated to protect the shareholder’s or owner’s personal assets from the liabilities of the business. For this, it is recommended that one should consult a professional regarding the structure and incorporation, federally or provincially.
Online Sales Policy
As online sales rarely involve direct communication between the seller and the buyer, it is best practice to outline all the terms and conditions regarding the price, taxes, shipping, and delivery details along with the products, payment methods available, and any associated guarantees, warranties, after sale services, refunds, etc. When setting up the online sales website, there should be a point confirming that the customers have understood all the terms and conditions associated with the purchase made online.
Goods & Services Tax, Harmonized Sales Tax and provincial Sales Tax (GST, HST, and PST)
In Canada, GST, PST, and HST may apply to all sales regardless of if it is through a physical store or an online store. In the case of online sales, if a store is incorporated in one province, then any sale made to customers in other provinces is considered an out of province sale, and thereby GST, HST, and PST may apply accordingly. Therefore, it is important to know how and when to charge sales tax. We recommend using an automated e-commerce software that automatically calculates the addition of these taxes to the total payable amount on your website.
Customs and Duties
In order to sell in Canada, you or your designated agent must act as the Importer of Record and be reported as such on customs declarations.
Any person or entity residing outside of Canada that imports goods into Canada is required to become a Non-Resident Importer (NRI). An NRI is a business that does not have a permanent presence in Canada but imports into Canada under their own name and business number. A business number (BN) must be obtained prior to importing.
If duty is applicable when importing into Canada, goods will generally be subject to tax at a rate of 5 percent that the importer has to pay. This tax is added to the value of the goods and then (if applicable) any Canadian sales taxes such as Good and Services Tax (GST) or Harmonized Sales Tax (HST) is then charged. The seller is responsible to comply with all Canadian Customs laws and regulations, including applicable duty and tax requirements.
Consumer Protection Acts
Since every province and territory has its own consumer protection act, it is highly recommended that one should be aware of the certain laws that apply specifically to a particular province or territory. Be sure to clarify the jurisdiction for any sales dispute.
Marketing Measures
Sending out marketing mails on a mass scale is one way of promoting an online business. However, a seller needs to be informed about the Canadian Anti-Spam law that applies to e-mails sent out to promote the business. Newsletters, discount vouchers, etc. sent out as e-mails should include an option to unsubscribe, offering an option to buyers to withdraw themselves from such promotional measures. (For more information read: Canada’s Anti-Spam Legislation).
Along with these requirements, some of the regulations that apply to traditional businesses with physical presence may also apply to online businesses, such as registering business name, copyrights and trademarks, privacy, product safety and exporting. Be sure to confirm that with your business advisor or consultant. Keeping these points in mind can help you avoid any disputes, cancellations, or any other situations that could tarnish your online business’ reputation.
Additionally, here are a few more articles, you may find informative regarding Canadian e-commerce:
- Top Seven U.S. Tax FAQs for Canadian Online Businesses
- Tax Implications of Expanding your Online Business to Canada
AG Tax LLP Can Help
If you have any tax-related queries or need assistance with tax planning or filing please contact AG Tax. Our tax professionals are highly-experienced with U.S. and Canadian tax laws and can provide you the right guidance to handle your tax situation.
Aylett Grant Tax LLP is a full service accounting firm with a dedicated team of experts, who are highly-qualified and experienced in handling situations related to U.S., Canada and other international tax laws.
We can assist with:
- Canadian Personal and Corporate tax returns
- Cross Border Taxation and Business Planning
- U.S. Personal and Corporate Taxation
- Disclosure of Foreign Assets and other information filings
- Retirement planning
- Estate Planning, Inheritance tax advice
To obtain a quote or to arrange for a consultation to discuss your tax related queries, please contact us at:
- 416-238-5920 (Greater Toronto Area, ON)
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