Virtual stores are the emerging trend, as they are an easy way to do business without the need to have a physical store. With a virtual shop, one can reach out to a broad audience beyond the location of the store. However, while chalking out a plan to operate an e-commerce business and sell online, one needs to adhere to tax compliance in Edmonton with the various provincial and territorial regulations.
These regulations enforce even though the store does not have a physical address in other provinces in which it sells. Furthermore, the online business owner needs to be aware of the rules and regulations associated with distributing products in different parts of Canada. Various provisions may apply in regions for e-Commerce, online sales contracts, or other online sale transactions and advertising.
Here is a brief rundown of the points to keep in mind while running an e-Commerce business in Edmonton.
Additional Provincial Registration
If you do business with clients outside your registered province, it's a must to register your business in their land or territory of residence as well.
Like any other physically existing business, an e-commerce business needs to be incorporated to protect the shareholder's assets from facing any liabilities. For this, it is recommended to consult a professional entity regarding the structure and incorporation, federally or provincially.
e-Commerce Sales Tax
One of the significant challenges e-Commerce sellers face is understanding of tax compliance in Edmonton for sales tax regulations. To understand the concept of sales taxes, we need first to know what they are. In layman language, sales taxes are the additional amounts you collect from your customer and remit them to the government.
It is not an additional tax on your income, and it is not a charge either; it is something that could be more of a temporary possession which is returned to the government eventually.
Sales Tax Implications for eCommerce Sellers
Similar to other countries, Canada imposes a sales tax on products shipped to Canadian consumers. Sales taxes levied on a federal and provincial level. It is an amalgamation of state and provincial tax jurisdictions.
Some provinces have harmonized their sales taxes in compliance with federal sales taxes (hence, the name HST – Harmonized Sales Taxes).
In a nutshell, an e-Commerce company will need to register to collect sales taxes from Canadian buyers if all of the following are true:
Canadian Income Tax Implications for e-Commerce Sellers
In general, your business is considered resident for tax purposes in Canada if:
Additionally, if your selling earns income from business carried in Canada, you will have to file a Canadian income tax return regardless if you are a small business supplier or not.
Canadian Controlled Private Corporations (CCPC) is subjected to a low of 14 -17% rate on the first $500,000 income.
The combined federal and provincial tax rates for non-resident companies vary from 25-31% regardless of the amount of income.
Most tax treaties absolve companies from paying taxes if the corporation does not have a permanent establishment (i.e., a fixed place of business) in Canada.
Necessary Tax Returns
If you are a non-Canadian corporation that carried business in Canada, you will be required to file a T2 tax return along with Schedules 91 and 97. If you are claiming protection under one of the treaties, you will need to specify sections of the agreement on those schedules.
Non-resident sole proprietorships will have to apply for an Individual Tax Number (ITN) to file their business income. Forms T1 and T215 will need to be completed and submitted to the CRA by June 15th of every year.
Canada – U.S. Tax Treaty
Those e-Commerce sellers who don't have a permanent establishment in Canada or the U.S. are subject to the protection by the U.S. – Canada Tax Treaty.
Canadian e-Commerce corporations selling in the U.S. with no permanent establishments fill forms 1120-F and 8833. Corporations require an Employer Identification Number (EIN) from the Internal Revenue Service (IRS) to file their returns.
On the north side of the border, U.S. e-Commerce corporations selling in Canada will fill forms T2 and Schedules 91 and 97. A corporation will need a Business Number (BN) to file their tax returns with the Canada Revenue Agency (CRA).
For selling items to an out-of-province consumer, it is critical to understand how and when to charge sales taxes (GST, HST, and PST). In an ideal scenario, an e-Commerce platform should be set up in a way that automatically adds the precise amount of tax. Make sure to test the system, ensure that the system is up-to-date and verify that it is accurately set up. Business owners who sell online in other countries are essentially operating a multinational company. The more your company gets involved in the land of destination, the higher tax obligations and complexities arise.
What we have given here describes basic rules and considerations of e-Commerce taxation for Canadian and non-Canadian sellers. Your situation can be different, so consult with the experts to meet tax compliance in Edmonton. Approaching a competent tax professional of your choice is wise.
If you are operating an e-commerce business in Edmonton, run it under the right business structure. Make sure to know your sales and income tax obligations within and outside the country. Also, utilization of technology should stay on top of your business checklist.
We recommend you rely on knowledge, trusted advisors, and your primary business acumen to navigate through tax compliance challenges.
Book a free consultation today to know more about your way with taxes and their impact on your business.