Alas! In E-commerce Taxland
In trying to comply with tax laws for your e-business, you may find yourself falling down the rabbit-hole, going through the looking glass, and attending a Mad Tea-Party. Common sense, logic, and fairness never did apply fully to the field of taxation but this is especially true of e-commerce transactions. 1. Canada Customs Welcomes You to Canada! Since I`m located in Canada, let`s start here. Canada has what you might call a national sales tax or a value added tax (VAT). This Goods and Services Tax (G.
) of seven percent is applicable to many Canadian transactions. Not only is it critical to determine whether a taxable sale was made in Canada or not, but also where in Canada. If it was made (or deemed to be made) in any of the Harmonized Sales Tax (H.
) provinces (Nova Scotia, New Brunswick, and Newfoundland and Labrador), a higher, fifteen percent H. rate applies. This is because those provinces have allowed Canada to collect their provincial sales taxes for them. As well, each province and territory has its own rules. Ontario charges eight percent retail sales tax on many typical Internet transactions whereas Alberta has no provincial sales tax. Of course, this is only scatching the surface.
This entire article is an over-simplification of a very complex subject. You will definitely need professional advice to help you through E-Commerce Taxland. 2. When Exports Aren`t Exports In Canada, exports are "zero-rated" sales for G. purposes. This means that when you ship a product to someone outside Canada, you don`t charge G. Yet, you get to claim (or deduct from the G. collected by you) all the "input tax credits" (G. that you paid for business purposes) to make that export. The idea, I suppose, is to encourage exporting. However, if you export products other than tangible, physical goods, beware! There are many pitfalls to watch out for. As one example, consider digitized products that you might sell from your Canadian website, such as e-books, downloadable software, or subscriptions to content.
You would be considered to be selling "intangible personal property". Unless your product is also considered "intellectual property" (such as software or e-books that you produced or have obtained the rights for), you will have to charge G. The reason why, according to the Canada Customs and Revenue Agency, is that it COULD be used inside Canada, even if it isn`t. Say you sold a membership for accessing digitized content (from various sources) on your Canadian website to a customer in the United States. Since there are no restrictions as to where the intangible personal property may be used, and the property is not considered intellectual property (nor the provision of a service), the American customer is subject to G.