At Export Development Canada (EDC), we’re proud of our Export Help team. Every team member is an expert in their field and every day, they help Canadian businesses navigate the challenges of global trade. The Export Help team is on the front lines to answer questions from exporting businesses and offer solutions to their struggles.
To further extend their reach, the team has started fielding questions from readers, like you, in every new issue of TradeInsights. (Click here to check out the Export Help questions from the July newsletter.)
This month’s roundup is all about sales taxes: When they apply, when they don’t, and where you can get help in navigating these murky waters.
Q: Do Canadian sales taxes apply when selling my online training services through my website?
– Marie from Ottawa, ON
As you probably already know, the Canadian sales tax (GST/HST) applies on the provision of taxable goods and services. Easy enough, right? Unfortunately, when it comes to online services, the tax situation gets a little tricky.
Online training courses, like yours, fall under the “e-commerce” tax heading. There are a lot of different factors that we have to consider when mapping out GST/HST tax obligations in relation to e-commerce—the type of supply, the rules that govern the place of supply, and so on.
The relationships between these factors can be complex. It’s very easy to get something wrong when assessing your situation, and I’m guessing the last thing you want is a surprise tax bill or a big penalty at tax time. To avoid these kinds of pitfalls, we recommend you consult a qualified tax advisor, who can figure out your specific situation and explain both your tax registration and filing obligations in Canada.
Here are some resources from the Canada Revenue Agency (CRA) that’ll give you insight into how Canadian sales taxes apply to e-commerce.
- We’ll start with the basics. You can learn about the fundamental relationship between Canadian taxes and e-commerce on CRA’s GST/HST and e-commerce page. The page also covers GST/HST registration, reporting requirements and other related considerations.
- The GST/HST and Electronic Commerce bulletin explains the CRA’s interpretation of the most important provisions of the Excise Tax Act to e-commerce. It should also give you an idea of how the CRA regulates electronic transactions in general.
- For example, your subscribers’ right to access the content on the website might be considered a supply of intangible personal property (see Example 15: ‘Access to an interactive website’ in the bulletin). This is one of those issues you’ll probably want to discuss with your tax advisor.
- Chapter I. Supplies made in Canada of the bulletin explains when a supply of intangible personal property is deemed to be made in Canada.
Why is this important to you and your business? Whether a supply is made in or outside Canada—and, if it’s Canadian, where exactly in Canada it’s made—affects the tax rate applied to that supply. Generally, supplies made outside Canada aren’t subject to the GST/HST.
- The CRA knows that a lot of these issues are difficult to understand. They’ve set up toll-free phone numbers, so you can ask their experts questions relevant to your business situation.
- For technical enquiries about the GST/HST, call the CRA at 1-800-959-8287 (English service);
- More general questions about the GST/HST should be directed to the Business Enquiries line at 1-800-959-5525 (English service).
I hope these resources will be enough to get you started, Marie.
I’d also like to congratulate you for taking the initiative to find out how exactly your business stands tax-wise before April rolls around. These issues can be complicated, intimidating and—at least for most people—no fun at all. It can be very tempting to put them off until deadlines force us to engage with them.
Remember: You should discuss any tax or sales tax issue with your accountant for further assistance and guidance.
Thanks for writing!
Q: How does U.S. sales tax apply to Canadian businesses selling training services through e-commerce?
– Rosa from Edmonton
Sales taxes in the United States are administered at the state level—instead of 10 Canadian provinces and territories, now, you potentially need to worry about 50 American states. Canadian or international companies may have to register and remit sales tax to a U.S. state if:
- They have “nexus” in that state (don’t worry, I’ll explain); and
- Their products or services are taxable in that state.
Each state has different rules regarding what level of business presence causes foreign companies to have sales tax nexus. Also, not all services are taxable. Each state determines individually which types of services (e.g. digital services) are taxable and which aren’t.
So, what is nexus? Basically, if your business has nexus, that means it has a significant business presence in the United States.
- Know Your Nexus, a guide from American tax specialist firm, Avalara, explains which business activities can trigger sales tax nexus. As the guide explains, even if you don’t have a physical presence in the U.S., your remote/digital sales into the U.S. may still trigger sales tax obligations in certain states. In other words, you may have nexus and you don’t even know it.
- To determine which rules apply to your sales of services, you’ll have to check rules for each individual state .
- Tax Jar’s State Sales Tax Map gives a general overview of sales tax requirements by state. It also provides an overview of which services are taxable. Check out the section called “Is What You’re Selling Even Taxable?” for a rundown of each state.
- For more details, refer to the Multistate Tax Commission site to find each state’s sales tax jurisdiction, a list of taxable services in that state and tax filing requirements.
I hope this quick overview gives you an idea of your U.S. tax status, and please don’t hesitate to write us back to let us know how else we can help you to expand, both in the U.S. and in any other country in the world. And remember to discuss your specific tax situation with an international tax accountant.