If you sell goods in Canada, you need to understand the rules for Canadian sales tax compliance.
As of July 1, 2021, certain nonresident vendors must register to collect goods and services tax (GST) and harmonized sales tax (HST) on eligible sales in Canada. This includes sellers of most goods and services, including digital goods. And as of June 2024, certain large technology businesses are also subject to a new digital services tax (DST).
Failure to properly collect and pay taxes could have consequences, including financial penalties, so understanding your obligations is critical. This guide will explain what you need to know.
The registration process for U.S. sellers
Under Canada's rules for nonresident vendors, companies with annual sales of taxable goods in Canada that total more than CA$30,000 must register to collect GST and HST. Sales volume is calculated over four calendar quarters and includes imports and goods and services sold in Canada. Once the CA$30,000 threshold is reached, registration is mandatory.
Companies that have not yet met this threshold may wish to register voluntarily. Voluntary registration allows eligible businesses to claim credits for GST and HST tax they pay on expenses. Registration can also build trust with customers and partners in Canada, as it signals voluntary compliance with tax rules.
If you are required to register, you can do so online with the Canada Revenue Agency. You will first need to register for a business number (BN) using the online service at Business Registration Online (BRO). Registration is required to:
- Charge GST and HST.
- Complete and file a GST or HST return.
- Pay the tax that you collect.
- Claim input tax credits.
If you have already charged tax on your sales more than 30 days prior to registering, you will need to call 1-800-959-5525.
You'll need to provide your business name, your business number, details on your business’s type, the names of all owners, the company's physical address, and a mailing address. You'll also need to provide a description of the major business activities your business engages in.
After registering, you'll receive a GST and HST account number and can register for a My Business Account to fulfill compliance requirements online.
Registration under the Digital Services Tax Act
Under the new Digital Services Tax Act, companies that meet certain additional requirements must register to collect and pay DST. However, under the DSTA, businesses must register only if:
- They have more than €750 million in global revenue.
- They have digital services revenue of more than CA$10 million.
Penalties of CA$20,000 will apply if you are required to register under the DSTA and fail to do so.
What are the Canadian GST and HST?
Canadian sales taxes are less complicated than U.S. sales taxes, as all 50 U.S. states have their own rules and requirements for what items are taxable, when businesses must register to collect sales tax, and what tax rates apply. In Canada, there is a national sales tax to comply with, and there are just 13 provinces and territories to worry about.
The national sales tax is the GST. It's a standard 5% tax that applies across the country.
New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island collect a different tax, the HST. In these provinces, the GST has been blended with this provincial sales tax. The HST rate is 13% in Ontario, 14% in Nova Scotia (as of April 1, 2025), and 15% in New Brunswick, Newfoundland, and Prince Edward Island.
What sales are subject to GST or HST?
The majority of goods and services sold in Canada are subject to GST or HST. GST and HST also apply to real property, including land and buildings; intangible personal property such as digital products downloaded over the Internet; and intellectual property rights.
A small number of goods and services are exempt from GST, which means that they are not subject to tax at all. This includes things like educational services and most services that are provided by financial institutions.
There are also some zero-rated goods and services. Zero-rated items are taxed at a rate of 0% but may still count towards determining whether you meet the sales thresholds that determine an obligation to collect taxes.
Examples of zero-rated goods include:
- Milk, bread, vegetables, and other basic groceries.
- Dried tobacco leaves, raw wool, wheat, grain, and other agricultural products.
- Certain prescription drugs.
- Hearing aids, artificial teeth, and certain other medical devices.
- Feminine hygiene products.
- International passenger air travel except to certain destinations including the U.S.
- Inbound international freight transportation services for transporting goods to the destination specified by the shipper.
- Outbound international freight transportation services for transporting goods if the charge for the service is at least CA$5.
Provincial sales tax (PST) and other regional taxes
British Columbia, Manitoba, and Saskatchewan also collect a provincial sales tax (PST) while Quebec collects a Quebec sales tax (QST). The tax rate applies to the price of goods prior to GST being added, and rates vary from 6% to 9.975%.
The threshold to register to collect PST or QST varies by province:
- In British Columbia, if you have gross revenue of at least CA$10,000 in the prior 12 months, you will have to collect PST.
- In Manitoba, the threshold for registration is CA$30,000, as of January 2024.
- In Quebec, foreign suppliers must register once they have CA$30,000 in sales in the past 12 months.
- In Saskatchewan, there is no minimum threshold to register as of January 1, 2020.
Sales tax rules for e-commerce sellers
Canada has specific rules for nonresident e-commerce sellers. Here are some of the key things that online sellers need to know:
Marketplace facilitators vs. individual sellers
Many sellers in the U.S. use a third-party marketplace, such as Amazon, eBay, or Shopify’s Shop app, to sell their items to buyers in Canada. When that's the case, special rules apply. That's because Canadian laws require "digital platforms" to collect tax when items are sold on their platforms.
A digital platform is a website, electronic portal, store, gateway, distribution platform, or other electronic interface that facilitates the supply of products, goods, services, or short-term accommodation rentals. While sites that solely process payments don't count as digital platforms, any website that plays a role in setting policies or controlling key parts of the transaction between the seller and buyer could be considered a digital platform.
Different provinces may have their own definitions, and their own terms, for these types of platforms. For example, British Columbia refers to them as marketplace facilitators, while Quebec calls them distribution platforms, and Manitoba refers to them as online sales platforms. Saskatchewan refers to them as marketplace facilitators, operators of electronic distribution platforms, and operators of online accommodation platforms.
However, while the names and definitions vary slightly, the key is that the marketplaces must collect GST and HST on taxable sales that occur through their platforms. Sellers based outside of Canada who offer their services only on these platforms don't need to register to collect taxes and can exclude sales made on these platforms when determining whether they’ve hit registration thresholds.
Direct-to-consumer (DTC) sales
If you sell directly to consumers, you will need to keep track of whether you exceed the CA$30,000 threshold either in a single quarter or over the prior four consecutive calendar quarters. Once you exceed this threshold, you are no longer a small supplier. You must register for GST and/or HST and begin collecting the taxes due.
If you’re selling into the provinces that collect PST, you also need to understand their thresholds for when you must register to collect and pay these taxes.
The province you are selling goods and services into will also determine the tax rate you pay, based on whether you owe:
- GST
- HST
- PST
Dropshipping and fulfillment centers
The Canadian government taxes sales on products sold to Canadians by nonresident vendors if those sales occur via fulfillment warehouses located in Canada.
If the nonresident business sells goods through a distribution platform, the distribution platform operator must register and collect GST or HST. The platform must also keep records of all nonresident vendors and businesses that store goods in their warehouses to be sold to Canadian customers in the future.
However, if the nonresident business stores goods in a Canadian fulfillment warehouse that is not acting as part of a distribution platform, then the nonresident business will need to register and pay these taxes directly.
If your business is located outside of Canada, sells on Amazon, and takes advantage of Canada Fulfilment by Amazon (FBA), then the Amazon service fees are subject to Canadian sales tax at the tax rate where the center providing fulfillment services is, regardless of where your business is located.
Shipping and sales tax
GST and HST do not apply to international shipments, but they do apply to domestic shipments within Canada. However, while domestic freight transport services are subject to GST or HST, if the transport is part of an international freight movement, it may qualify for zero-rating.
Handling returns and refunds
If customers return taxable items, you can refund the GST, HST, or PST collected on the transaction. However, the refund or credit must be properly documented. For example, in Quebec, the rules require that you prepare a credit note and provide it to the customer. The note must include:
- A statement that it is a credit note.
- The business name, and the GST and QST registration numbers.
- The customer's name or business name.
- The date on which the credit note was issued.
- The amount of the adjustment, credit, or refund, and a statement specifying that the amount includes the tax adjustment.
When you refund or credit the tax to the customer, you can deduct that amount from your net tax for the reporting period during the time when the credit or debit note was prepared if you already took the tax into account when calculating net tax for either that reporting period or a previous reporting period.
Digital goods and software
Under the rules that went into effect on July 1, 2021, nonresident businesses that sell digital products and services to Canadian consumers are obligated to register and collect GST and HST if their revenues from sales to consumers in Canada exceed CA$30,000 during a 12-month time period.
Digital products subject to the tax include:
- E-books
- Images
- Movies
- Videos
- Downloadable and streaming music
- Cloud-based software
- Software as a service (SaaS)
- Platform as a service (PaaS)
- Infrastructure as a service (IaaS)
- Websites
- Web-hosting services
- Internet service providers (ISPs)
- Online ads and affiliate marketing income
In June 2024, Canada also enacted a law that applies DST to large technology companies. This is a tax on gross revenues derived from providing digital services to people in Canada. This is a special 3% tax on very large tech companies with:
- More than €750 million in global revenue.
- Digital services revenue of more than CA$10 million.
Affected businesses were required to register by January 31, 2025, and must file their first return and pay their first tax by June 30, 2025.
Filing and remittance
GST returns may need to be submitted monthly, quarterly, or annually, depending on the amount of revenue that your company generates. The CRA and individual provinces will alert you to your filing schedule. If you are required to file annually, you must file within three months of the year's end.
When you register to file and pay GST or HST, you are allowed to recover the GST or HST taxes that you paid or that are payable on your purchases and on your expenses related to your commercial activities. You can do this by claiming input tax credits, as long as the purchases were for the consumption, use, or supply in commercial activities.
Some examples of expenses you can claim input tax credits for include:
- Startup costs for your business.
- Expenses associated with a business using your home.
- Freight and delivery charges.
- Costs of fuel.
- Professional service fees, including legal and account fees.
- Allowable meals and entertainment expenses.
- Maintenance and repairs.
- Allowable motor vehicle expenses.
- Rent.
- Utilities and phone service.
- Office expenses.
- Travel.
It’s very important that you register as required, file your forms by the schedule, remit the taxes due, and claim the credits that you are owed so you can pay the correct amount of tax. If you do not, you could be subject to penalties and interest costs. You could be penalized for late returns, failure to file, or failure to report information accurately.
Compliance tips and best practices
As you can see, there’s a lot to know about Canadian sales tax if you want to avoid penalties and comply with the law.
The best way to do that is to use automated software to manage your sales tax obligations. Services like Numeral can help you to handle all aspects of complying with sales tax laws in Canada and around the world, including determining when you owe tax, submitting the correct registrations, filing your tax forms, and paying taxes when they’re due.
You should also keep careful records to demonstrate that you have complied with the law. Numeral can help you to do that with helpful reports on sales tax collected and paid. These records could be invaluable in case questions arise about whether you followed the rules.
If you’re still unsure about how to handle GST, HST, and PST collection, you can also get professional help. Experts at Numeral can answer your questions about many cross-border tax issues and work with you to ensure that your company operates in accordance with local tax laws.
[blog-post-inline-cta]
The bottom line
If you’re selling goods or services in Canada, including digital goods, chances are high you should be collecting GST, HST, and/or PST. You should know what the rules are in all the areas where you’re doing business, and you should make sure you comply with your sales tax obligations to avoid serious consequences, including substantial costs for failure to file returns and pay taxes when they’re due.
