Are you constantly getting emails regarding: if you ship your product to Canada? Did you know that consumers in Canada are spending more time shopping online than ever before? In the past year, over eight in ten Canadians have made a purchase online, and the average amount of reported spending annually (per Canadian) for online purchases in Canada is $954.
Before deciding if and when to start selling online to Canadians you must consider the tax consequences. Our cross border tax experts at AG Tax have compiled a short list of pertinent tax issues that could assist your future or current expansion to Canada.
Importing Goods into Canada
A common method of distributing goods in Canada is to sell through the online retailer Amazon. In order to sell in Canada through Amazon.com, you will need to pay destination duties, taxes, and customs clearance fees before your product can be sold to Canadian residents or stored in an Amazon fulfilment center. 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.
- You can register for a business number, or add an import-export account to an existing business number, by calling the Canada Revenue Agency at 1-800-959-5525. You may also obtain a business number by registering online or by completing Form RC1, Request for a Business Number (BN). After completion send the completed form to the nearest Tax Centre.
There is no charge if you apply directly with the CRA. The Canada Border Services Agency (CBSA) will provide you with the importer number after they receive the form. You must provide your import-export account on all of your customs documents.
Duties and Sales Taxes
If duty is applicable when importing into Canada, goods will generally be subject to tax at a rate of 5 percent that the importer is responsible for paying. 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 charged. The seller is responsible to comply with all Canadian Customs laws and regulations, including applicable duty and tax requirements. The duty paid can generally be claimed against any GST/HST collected.
Sales made on Amazon.ca (as opposed to Amazon.com) are likely subject to GST or HST depending on the province of supply (where the product is being delivered).
As a result you may be required to register for GST/HST in Canada and collect and remit these taxes. GST/HST returns are filed monthly, quarterly, or on an annual basis dependent upon your Canadian sales during the year. Lower-volume sellers on Amazon.ca will generally fall in the category of an annual filer (once a year).
After your importer number is issued, you will receive a questionnaire from the Canada Revenue Agency to complete and return. GST registration will be completed approximately six to eight weeks after the form has been submitted and is usually retroactive to when the importer number is issued so that you can claim duty paid.
- For a more information on GST/HST, see our article GST/HST Implications when Exporting or Importing Goods in Canada.
Is a Canadian Income Tax Return Required to be Filed?
Are you considered to be carrying on business in Canada? If the answer is yes, then there is usually a Canadian tax filing requirement. The term “carrying on business” in Canada is not defined in the Income Tax Act. Generally speaking if you are operating through an agent in Canada or have inventory located in Canada on a regular continuous basis then you are considered to be carrying on business in Canada.
- Please note it is important to speak with your cross border tax advisor before importing goods into Canada to determine whether or not the facts and circumstances define your activities as “carrying on business” in Canada. Failure to do so could result in fines, penalties, or tax audits due to improper or missed filings. We often see tax situations that could have been avoided if proper tax planning had been done in the first place.
If your business is resident in the U.S., it may be eligible for benefits under the U.S. Canada Income Tax Treaty (Treaty). Specifically, it may be exempt from Canadian income tax provided it does not have a Canadian permanent establishment as defined under the Treaty. Unfortunately, even if you do not have a permanent establishment, you still may be required to file a Canadian income tax return to inform or disclose to the CRA that you are deriving benefits from the Treaty. A penalty of up to $2,500 per year can be assessed for failure to file for each year you are carrying on business in Canada.
- For more information see our article Treaty Based Tax Filings for U.S. Corporations in Canada.
Which Type of Canadian Corporate Tax Return Should be Filed (if Required)?
If you are required to file a Canadian income tax return, the type of return to file will depend on the entity you are legally operating the business under. For example, a sole proprietorship carrying on business in Canada would file Form T1, Personal General Income Tax Return, a partnership would file Form T5013, Statement of Partnership Income, and a corporation would file Form T2, Corporation Income Tax Return. Note that LLC’s and S-Corporations doing business in Canada should file a T2 regardless of how it is treated for U.S. tax purposes. Furthermore, LLC’s and S-Corporations planning to operate in Canada should immediately contact their cross border tax advisors before doing so as there may be potential double taxation issues that could be avoided with proper tax planning.
AG Tax LLP Can Help
Tax situations can be complex and burdensome, 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., Canadian, 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
Please contact any of our offices across Canada at 604-538-8735 (Greater Vancouver), 780-702-2732 (Edmonton and Alberta), or 416-238-5920 (Toronto) to arrange for an appointment to discuss your tax related queries.
Disclaimer: The information in this publication is accurate as of the time of its publication. AG Tax assumes no responsibility for changes to tax legislation subsequent to the publication of this document. The information provided is for general information purposes only and should not be acted upon without seeking professional advice. If you would like to engage our services, please contact our staff and obtain authorization to send our firm confidential information. A client relationship is not created by the transmission of information. A client relationship is only formed with our firm when a scope and engagement letter signed by the firm and the potential client detailing the terms of engagement is present.