Canada’s digital tax rules are evolving, region by region. No matter where your business is located, if you’re selling to customers in the Great White North, you should get a handle on how digital products are taxed (or not taxed!) across the 13 provinces.
What counts as digital products in Canada?
Generally speaking, a digital product is anything the customer receives or accesses via the internet. After making a purchase online, the customer gets an email, downloads a file or a program, or logs into a service portal. These are all instances of digital products. If the customer makes a purchase online, and then receives the good via snail mail, that’s a physical product…and not what this article is about. 🙂
As a term, “digital product” is slippery. It has many other names: digital good, digital service, electronic good, electronic service, e-good, and so on.
In particular, some parts of Canada use these terms: “incorporeal moveable property” or “intangible personal property.”
Electronic services liable to tax throughout Canada include:
- downloads or streaming of music, games, and other media
- software, apps, SaaS or other website subscriptions
- ebooks and some newspaper subscriptions
- application hosting and data warehousing
- telecom services
What are the different taxes in Canada?
Get ready for a few acronyms…
On a nationwide level, Canada has a federal Goods and Services Tax (GST) of 5%.
GST is one of the various consumption taxes chosen by governments and applied to sales of goods and services (as you might have guessed!). Other countries might use Value-added Tax (VAT), the US uses sales tax, and Canada has GST.
On a regional level, some places in Canada might have a Provincial Sales Tax (PST), which typically varies between 7 and 10%. Not all provinces use PST. Some don’t have any regional tax, while some use their own version. Québec has Québec Sales Tax (QST) and Manitoba has Retail Sales Tax (RST).
Five provinces layer these two levels of tax — federal and provincial — on top of each other, calling it the Harmonized Sales Tax (HST).
What are the digital tax laws in Canada?
As of July 1, 2021, Canada is applying its GST/HST rules to digital goods and services sold by non-resident vendors. These sales are referred to as "cross-border digital products and services." If your business expects over C$30,000 in B2C sales during a 12-month period, then you are required to register, collect, and remit Canadian GST/HST.
Overall, these are the current tax rates on cross-border sales of digital goods:
- 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
- 13% (HST) in Ontario
- 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
Three provinces have additional tax on cross-border digital services...so far
Quebec, Saskatchewan, and British Columbia have specific laws for digital services that are sold by foreign businesses. Manitoba will enact a cross-border digital tax law in December 2021. Each province has its own tax rate and tax registration threshold rule.
- Québec applies a PST rate of 9.975% with an annual registration threshold of C$30,000 in sales to local consumers. Sales to tax-registered businesses don’t count.
- Saskatchewan applies a PST rate of 6%, with no threshold at all. That means from the very first sale in the province, you are responsible for Saskatchewan PST.
- British Columbia has a PST rate of 7% with an annual registration threshold of C$10,000 in sales to local consumers. Sales to tax-registered businesses don’t count.
How to register for taxes in Canada
Canadian online businesses should register for GST/HST as well as the provincial sales tax wherever they have customers. For more in-depth information, check out our Business Guide to Canadian GST/HST.
Foreign businesses should also register for QST or PST as a “non-resident” supplier, but it’s only required if your sales surpass the threshold. You don’t need to hire a local tax representative to do it for you; there are simple online registration options.
How to register and file QST in Quebec
How to register and file PST in Saskatchewan
How to register and file PST in British Columbia
How to comply with Canadian GST, PST or QST
1. Always verify the customer’s location, then apply their local tax rate. Similar to EU VAT laws, Canadian digital tax rules require two pieces of customer location evidence that ensure the local tax must be applied. Any two of the following will do:
- the buyer’s billing address
- the buyer’s home or business address
- the IP address of the device used by the buyer at the time of the transaction (or some other geolocation information)
- the buyer’s payment-related bank information or the billing address used by the bank;
- the information from a subscriber identity module (SIM) card used by the buyer
2. In B2B sales, validate the buyer’s tax number. Since tax isn’t charged on B2B sales, it’s important to make sure the buyer is indeed a tax-registered business! For validating a GST/HST number for B2B sales, there’s a GST/HST Registry, which is free to use. QST numbers can be validated here.
3. File tax returns on time. Pay attention to the potential differences between GST returns and PST or QST returns. The frequency will depend on the province where you’re registered and perhaps the annual turnover of the business. The more you sell, the more often you file.
How to manage Canadian digital tax
Quaderno stays up-to-date on all of your sales in Canada, recording the location of customers, whether they are B2C or B2B, and tracking your total sales in the country and provinces (so you don’t need to constantly monitor whether you’ve passed the tax threshold). Not only that, Quaderno handles all of the GST, PST and QST related stuff: charging tax at the point of sale, delivering an accurate invoice, and logging the tax information for your records.
Since Canadian digital tax policy is evolving (remember, British Columbia will roll out new rules soon!), Quaderno stays up-to-date on the legal maze, too. Our software will alert you about any changes in GST policy and help you understand it.
Curious how we can help? Give Quaderno a try for 7 days.