This week, in an email to eBay Canada users, the company notified its users that it will have to collect ‘sales taxes’ on items sold by Canadian sellers shipping to Canadian addresses starting on July 1, 2022.
This new requirement is a direct result of a new law that changes how Canada requires eCommerce businesses to collect taxes on goods and services sold online.
Previously, the responsibility to collect and remit taxes to the federal and provincial governments fell on the individual sellers when required and applicable.
But this rule change mandates online marketplaces to become ‘tax collectors’ and even sellers previously exempted from tax collection requirements will have their sales taxed.
In a nutshell, virtually all sales on eBay, including used items, that are sold by Canadian sellers and shipped to Canadian buyers will be affected by this new regulation.
Canada’s taxation scheme varies by province. Therefore, buyers will pay the ‘regional’ tax they would pay at a local store when making purchases on eBay, regardless of the seller’s location.
Beginning on July 1st, eBay will have to collect the following applicable taxes:
- GST – Goods and Services Tax
- HST – Harmonized Sales Tax
- QST – Québec Sales Tax / Québec
- PST – Provincial Sales Tax / Columbia and Saskatchewan
- RST – Retail Sales Tax / Manitoba*
* eBay omitted RST from its email announcement, but it appears the marketplace will also be required to collect RST from buyers located in Manitoba.
Just like the US sales tax created a lot of questions and confusion among eBay sellers, the Canadian new regulations are doing the same.
Some sellers in the eBay Canada community forums seem to believe that they should be excluded as they do not sell enough products to meet the standard provincial thresholds that require them to collect taxes.
However, like the so-called ‘Marketplace Faciliator’ laws in the United States, provincial thresholds do not apply to individual eBay sellers as the new regulation put the responsibility to collect the applicable taxes on online platforms.
Sellers that have not been required to register with CRA (Canada Revenue Agency) and provinces are still considered a small supplier for sales that they transact outside of eBay.
But when selling on eBay the marketplace will collect, report, and pay the tax on their sales and there are no additional steps these sellers will have to take.
It gets a bit more complicated when sellers are already collecting tax as they are registered with CRA and provinces.
In this case, eBay says it “will be appointed as a billing agent for collection and remittance of Canadian sales taxes where the sales tax laws do not automatically require it. As such, eBay will require completion of billing agent authorization forms.”
The company will be sending out a separate communication for sellers already registered with CRA and provinces to explain how to proceed.
International sellers that import goods to Canadian buyers directly also do not appear to be impacted by this change as the Canada Border Services Agency handles all applicable tax calculations on imports and collects them from the buyer before releasing the shipment for delivery or pickup.
eBay Fees on Taxes
Of course, concerns/questions immediately popped up with Canadian sellers on how this will impact the eBay transaction fees they pay on sales.
Just like retail stores, credit card payment transaction fees apply to the gross amount of the sale, including shipping and taxes. Therefore, Canadian eBay sellers should expect to pay the ‘transaction fee’ on the taxes as well.
This is already the case in the US where eBay charges the transaction fee on taxes as other payment processors would as well.
However, unlike payment processors, eBay charges the full transaction fee, not just a payments processing fee on taxes, so that makes the cost of collecting taxes more expensive for eBay sellers.
Input Tax Credits
Another question that has been raised is regarding Input Tax Credits (ITCs), which businesses can take on purchases made for supplies to produce their goods and services.
This appears similar to tax-exempt sales in the United States. eBay has a method to handle such sales in the United States but as of today, it’s unclear how eBay will handle that in Canada.
The eBay announcement still lacks details that will be important to sellers if they are already registered to collect taxes or if they make purchases and normally would be able to take ITCs.
For small sellers that haven’t had to deal with tax collection, there won’t be any procedural changes as eBay will charge the buyer. However, as noted, they will pay a slightly higher transaction fee to cover the collection of the taxes, which will be a ‘hidden’ fee increase.
Just as the sales tax rules enacted by US states impacted eBay sales and created a lot of questions and confusion, Canada’s new regulations will be equally messy at the beginning.
These rules will apply to other online marketplaces as well. Amazon has already been collecting these taxes for Amazon FBA shipments.
We expect more detailed information from eBay Canada on this taxation change and will update this post with relevant new information when it becomes available.
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