Setting Up Taxes for Your Online Store

Tax configuration is one of the most important — and potentially costly-to-get-wrong — steps when setting up an online store. This guide covers Canadian sales tax fundamentals (GST/HST/PST/QST), when you are required to register, and how to configure tax rules in common e-commerce platforms. Note: this article is for educational purposes only. Consult a Canadian accountant or tax professional for advice specific to your business.

1. Canadian Sales Taxes at a Glance

Canada uses a combination of federal and provincial sales taxes:

For most small businesses registered in Ontario (like those based in Ottawa), you will collect 13% HST from Ontario customers. For customers in other provinces, you apply that province's rate once you exceed the registration threshold there.

2. When Must You Register?

You must register for a GST/HST account with the Canada Revenue Agency (CRA) when your taxable revenue exceeds $30,000 CAD in any single calendar quarter or over four consecutive quarters. Below this threshold you are a "small supplier" and registration is optional (though you can register voluntarily).

• Once registered, you must charge GST/HST on all taxable supplies.
• You can claim input tax credits (ITCs) to recover GST/HST paid on your business purchases.
• For Quebec PST (QST), you register separately with Revenu Québec once you exceed $30,000 in Quebec sales.
• BC and Saskatchewan PST also have separate registration thresholds — check the provincial authority for current figures.

3. Zero-Rated and Exempt Supplies

Not everything you sell is taxable. The CRA distinguishes:

• Taxable supplies (5%/13%/15%): Most goods and services — electronics, clothing, web design services.
• Zero-rated supplies (0%): Taxable but at 0% — basic groceries, prescription drugs, most agricultural products, exports. You still claim ITCs.
• Exempt supplies (no tax): Financial services, most medical/dental, many educational services. No ITCs on related expenses.

If you sell a mix of taxable and exempt products, your platform must be configured to apply tax only to the taxable items.

4. Configuring Taxes in Your Platform

Most e-commerce platforms have a Tax or Billing section in their settings. The general process:

1. Navigate to Settings → Taxes (exact name varies by platform).
2. Enter your GST/HST number (format: 123456789 RT0001).
3. Create a tax region for each province where you are registered.
4. Set the rate for each region (e.g., Ontario = 13%, Alberta = 5%).
5. Apply tax rules at the product level if you sell zero-rated or exempt items.
6. Enable tax-inclusive pricing if you want displayed prices to include tax (less common in B2C Canada).
7. Test by placing a sample order from each province using an address tester.

5. Filing and Remitting Tax

Once you are registered, you must file GST/HST returns and remit the tax you collected, minus your ITCs. Filing frequency depends on your annual revenue:

Use the My Business Account portal on the CRA website to file online. Export your store's tax reports (most platforms offer a "Tax Summary" export) to reconcile what you collected versus what is owed.

6. US and International Orders

If you sell to customers outside Canada:

• Exports are generally zero-rated for GST/HST purposes — you charge 0% but can still claim ITCs.
• The destination country's import duties and VAT may apply — this is the customer's responsibility for personal imports, but you may need to register for VAT in the EU if you sell regularly to European customers (thresholds vary by country).
• For the US, you may need to collect US sales tax if you exceed economic nexus thresholds in individual states (typically $100,000 USD/year or 200 transactions). Platforms like Shopify Tax and TaxJar handle this automatically.

7. Common Tax Configuration Mistakes

• Charging HST to Alberta customers: Alberta has no provincial tax — charge only 5% GST.
• Forgetting Quebec QST: If you exceed the QST threshold, you must register with Revenu Québec separately from your CRA registration.
• Applying tax to zero-rated items: Basic groceries and exports must be tagged as zero-rated in your platform, not just "no tax".
• Not updating rates: Provincial PST rates change. Subscribe to your platform's tax update notifications or use an automatic service.
• Losing tax reports: Archive monthly tax reports and keep them for at least 6 years (CRA audit window).