Do I Charge Sales Tax to Canadian Customers?

For U.S. businesses selling to customers in Canada, understanding sales tax obligations is complex. The answer to whether to charge sales tax depends on various factors, including the nature of goods or services sold, sales volume, and specific Canadian tax regulations. Careful consideration is required to ensure compliance and avoid potential liabilities.

Sales Tax on International Sales

U.S. businesses generally do not collect U.S. state or local sales tax on tangible goods shipped to international customers, including those in Canada. These sales are typically considered exports and fall outside the jurisdiction of U.S. sales tax laws.

While tangible goods exported from the U.S. are usually exempt from U.S. sales tax, different rules can apply to services or digital goods. The U.S. sales tax system is governed at the state level, leading to varied regulations across jurisdictions. Each state determines its own sales and use tax laws, and while some services and digital products may be taxable within the U.S., their treatment for international sales can differ.

Canadian Tax Obligations

A U.S. business becomes obligated to collect Canadian sales taxes if it establishes a “significant presence” or “nexus” in Canada. This can arise from various activities, not just physical presence. Economic nexus, based on sales volume or the number of transactions into Canada, is a common trigger for tax collection requirements.

For instance, many non-resident businesses selling taxable goods or services to Canadian customers are required to register for Goods and Services Tax (GST)/Harmonized Sales Tax (HST) if their revenue exceeds CAD $30,000 within any consecutive four quarters. Specific rules also apply to digital products and services, as well as goods sold through online platforms.

Non-resident providers of digital products and services to unregistered Canadian consumers are generally required to register for GST/HST if their sales surpass the CAD $30,000 threshold in a 12-month period. Additionally, provincial sales taxes (PST) in certain provinces, such as British Columbia, Manitoba, and Quebec, may have their own registration thresholds, some as low as CAD $10,000 or even no minimum threshold for digital services in Saskatchewan.

Canadian Sales Tax Framework

If a U.S. business determines it has a tax collection obligation in Canada, it needs to understand the different types of Canadian sales taxes. The federal Goods and Services Tax (GST) is a 5% tax applied across Canada on most goods and services.

In some provinces, the GST is combined with a provincial sales tax to form the Harmonized Sales Tax (HST). Provinces like New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island use HST, with rates varying from 13% to 15%.

Other provinces operate a separate Provincial Sales Tax (PST) in addition to the federal GST. British Columbia levies a 7% PST, Manitoba has a 7% Retail Sales Tax (RST), and Saskatchewan applies a 6% PST. Quebec has its own Quebec Sales Tax (QST) at a rate of 9.975%, which is applied on the selling price excluding the GST. The specific tax rate and type applied depend on the customer’s location and whether the product or service is tangible, digital, or a service.

Collecting and Remitting Canadian Taxes

For businesses obligated to collect Canadian taxes, the process involves specific registration, collection, and remittance steps. The first step is to register for a Business Number (BN) with the Canada Revenue Agency (CRA), which includes a GST/HST account number.

Non-resident businesses can register online or by submitting a request to the CRA. If provincial sales tax registration is also required, separate processes may be necessary for each relevant province.

Once registered, businesses must collect the correct tax amounts from customers based on their province of residence and the applicable GST/HST or PST/QST rates. The frequency of filing and remitting collected taxes to the CRA depends on the business’s annual taxable revenue. Businesses with less than CAD $1.5 million in revenue typically file annually, while those between CAD $1.5 million and CAD $6 million file quarterly, and those over CAD $6 million file monthly. Remittance of taxes is usually done electronically through online portals by the specified deadlines.

Import Duties and Customs Charges

Import duties and customs charges are distinct from sales taxes but are significant financial considerations for cross-border trade. These fees are assessed by the Canada Border Services Agency (CBSA) on goods entering Canada.

They are typically paid by the importer of record, which is often the Canadian customer, unless otherwise arranged. The calculation of duties depends on the type and value of the goods, as well as their country of origin.

While many goods imported from the U.S. may be duty-free under trade agreements, certain products can be subject to tariffs. These duties are added to the value of the goods before sales taxes are applied and are separate from the GST/HST or PST that may be collected.