Etsy to Collect ‘Sales Taxes’ in Canada Starting July 1 to Comply with New Law
Etsy announced this week that it also will have to follow Canada’s new ‘Sales Tax’ laws that require marketplaces to collect sales tax on items sold on their platform.
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This new law changes how Canada requires eCommerce businesses to collect taxes on goods and services sold online and applies to Canadian sellers selling to Canadian buyers.
Prior to the government regulations, it was the responsibility of each Canadian seller to determine if they had to collect and remit taxes to the federal and provincial governments.
But with this law, online marketplaces become ‘tax collectors’ and even Canadian sellers that previously were not required to collect taxes because they did not meet the threshold requirements will have their sales taxed on Etsy starting on July 1.
Just like in the US, Canada’s tax scheme varies from province to province and buyers will be taxed based on the ‘regional’ tax they would pay normally when shopping at a local store, regardless of the seller’s location in Canada.
The five taxes that will now be required to be collected by Etsy are:
- 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*
* Etsy omitted RST from its announcement, likely considering it the same as PST. Regardless, it appears the marketplace will have to collect RST from buyers located in Manitoba.
New Rules Brings Question for Canadian Etsy Sellers
Just like eBay’s announcement regarding this new ‘Sales Tax’ requirement, Etsy’s announcement is also short on some important details.
Etsy’s announcement made no mention of Input Tax Credits (ITC), which businesses can take on purchases made for supplies to produce their goods and services.
It is not uncommon for Etsy sellers to buy materials on Etsy to make the goods they sell and they even have a “Craft Supplies” section.
The company also didn’t specifically address if sellers would pay the transaction fee (payment processing fee) on the taxes through its Etsy Payments program.
While this is covered here, where Etsy states processing fees apply to any applicable sales taxes, Etsy should have been a bit more transparent on this issue. Many Canadian sellers will see new fees on their sales due to this tax change on July 1 and may wonder why fees went up again.
Etsy also sidestepped vintage products which are typically used products. Sales taxes always apply to all goods sold, new or used. Often small sellers are not aware that used products are still taxable.
Etsy’s announcement does explain that sellers who are already collecting sales tax will need to provide their tax ID to the platform to ensure buyers are not charged twice for these taxes.
In addition, when this change occurs on July 1, Etsy is getting rid of the existing sales tax tool for Canadian sellers as it will no longer be required.
And finally, Etsy explained that it too will have to collect GST/HST on seller service fees like listing fees, Etsy Ads or Offsite Ads fees, or Pattern subscription fees. Sellers will not pay taxes on payment processing and transaction fees.
Just like new sales tax rules in the US created a lot of confusion, these new regulations will likely do the same for Canadian sellers, especially smaller or newer sellers.
The company said it will be providing more information on these changes over the coming weeks. In the meantime, here is the brief announcement by Etsy about the new Canadian ‘sale tax’ requirements.
New Tax Regulations Impact Domestic Sales Only
The new law only applies to transactions within Canada. Canadian buyers purchasing items from the US or other countries are charged these taxes upon importation along with any applicable duties.
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Richard is co-founder of eSeller365. He has over 17 years of experience on eBay which includes tens of thousands of sales to buyers in over 100 countries and even has experience with eBay’s VeRO program enforcing intellectual property rights for a former employer. And for about two years Richard sold products on Amazon using Amazon FBA in the US.
To “relax” from the daily business grind, for a few weekends a year, he also works for IMSA as a professional race official.
Etsy’s attempt to adjust their platform to account for the new online sales tax rules in Canada is beyond ridiculous, and grossly unfair to higher volume sellers. Anyone who is registered with CRA for HST is going to lose a lot of sales.
Just because online platforms like Etsy now have an obligation to collect and remit sales tax should not mean those of us who are required by law to collect those same taxes should lose the ability to do so. The platform is already set up for that, and they are taking that away. Their pat answer is to increase our prices, which is absurd. Sales taxes vary from 5 to 15% across Canada. How can I accurately re-price my products? I’m not allowed to set different prices for different provinces.
And more importantly, why has Etsy chosen to make my prices appear up to 15% higher than my competitors because they want me to list products including tax if I have my own HST number, while everyone else’s listings will show before tax prices. Prospective purchasers will scan on by my listings without clicking and thus never know that my prices only appears 13 – 15% higher due to Etsy’s incompetence. I expect to lose a significant portion of my Canadian sales. Frustrating given that Etsy has promoted domestic listings over international ones. It’s not like I can try to make up the lost sales in the USA.
The problem with the new change, is that Quebec buyers already paid the 10% of QST since 2019 on digital products and services.
It was on each digital incoive (from Canadian and wolrd shop purchases invoice), a * with automatic charged tax.
But Etsy didn’t remove this previous code in their system.
Since July 1rst, Quebec buyers are charge 25% on digital instead of 15%.
Taxes for Quebec buyers are 5% for Canada tax and 10% for Quebec tax. TOTAL = 15%.
Not on Etsy invoice for digital products everywhere on Etsy, they cahrge Taxes (which equal 15%) + another line with the automatic tax of 10% charged on digital. so total paid = 25% taxes.
They should either charge 5% taxes for canada and keep the previous automatic 10% for Quebec taxes OR if they keep the line taxes at 15%, remove the second line of previous automatic 10% charged since 2019.
Problem been submitted to Etsy still no answer about it. I hope they will refund the tax paid too much to buyer. If people do not read their onvoice, they would not necessary notice they paid GST+QST+QST again on their digital products invoice.
There is no life for a small e-commerce business in Canada! With super high shipping prices, and now taxes this is just impossible.
Why are they charging this when your business makes under 2,000 a year ????