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Canada Marketplace facilitator tax rules

By / In MARKETPLACES / April 12, 2022

Tax determination for marketplaces

 

Canada implemented marketplace legislation on the Federal level and on the provincial level. Canada consists of several provinces and each has GST/HST tax rates which differ from 5% to 15%. E-commerce operators should use the destination principle as the way to determine a tax rate for a sale.

 

If you just started to operate in Canada as a Marketplace you don’t oblige to register right away. You need to consider several rules:

  1. Ship from rule: if a Marketplace or its vendors don’t ship from Canada, they have no obligations to collect and remit GST or HST. That means that when a merchant imports from outside Canada to Canadian customers such a sale is not taxable.
  2. The merchant with a Canadian VAT number rule.

 

A marketplace is obliged to collect and remit GST/HST when both conditions are met:

  1. Sale facilitates where both the departure and arrival address is in Canada.
  2. A merchant has no GST registration in Canada.

 

That means that there is no obligation to collect and remit GST/HST for Merchants with Canadian VAT numbers.

  1. Annual threshold rule
    If Marketplace sales in accordance to rule 2 are less than 30K CAD, the marketplace doesn’t need to register for a Canadian GST number – this registration threshold is set at the Federal level. Provinces also set their registration thresholds. Нou can check them here. For example, the BC registration threshold is CAD 10K.
  2. B2B rule
    For online marketplaces, all the above rules are the same for B2B and B2C sales.

 

As we see from our experience that based on mentioned rules Marketplaces sometimes choose not to register for GST in Canada and force all their Merchants who sell from Canadian addresses to register.

Note, that when a marketplace operates in Canada, it must keep all tax information for tax audit purposes.

British Columbia, one of the Canadian Provinces introduced new registration requirements for online marketplaces to register for the province sales tax (PST) when they provide advertising or promoting and listing the sale of goods, software, or sale of taxable services (marketplace services) to Merchants. This new legislation will come into force on the 1st of July 2022. The province registration threshold is CAD 10K.