As reported last month, online marketplaces are changing how taxes are collected and remitted for orders shipped within Canada.
Unfortunately, it looks like it has not been a smooth transition for some Canadian Etsy sellers who are now left having to increase their prices to include tax in certain situations.
Effective July1, 2022, Etsy will be collecting the GST/HST for non-registered Canadian sellers and remitting these funds to the CRA (Canada Revenue Agency).
For those of us registered to collect GST/HST, Etsy will not be charging the tax and is taking away the sales tax tool. This means that we, the GST/HST REGISTRANTS, will no longer have the ability to set the appropriate rates for our customers. By law, we must continue to collect and remit the GST/HST from our Canadian customers. Etsy instructs us to add the tax to our prices. That means that our prices, effective July 1, 2022, need to be tax included. This is problematic for many reasons.
The GST/HST rate varies from 5% to 15% depending upon the purchaser’s province or territory. If a seller were to increase their prices by 5%, the correct GST would be charged for certain jurisdictions. However, for those provinces where the HST rate is 15%, the seller would need to, in effect, pay the additional amount out of pocket.
For the above example, I’ll use a 5% increase and an item priced at $100, so $105 with 5% added. For jurisdictions with 5% GST, the seller would need to remit $5.00 to the CRA, which is the additional amount charged for the item. For provinces where the HST is 15%, the seller would need to remit $13.69 to the CRA. ($105/1.15 x 15%) In this situation, the seller would be paying $8.69 out of pocket. If a seller were to increase prices by 15%, purchasers, in jurisdictions, with 5% GST would be over paying for their item.
The item prices for Sellers who are GST/HST registered will appear higher than those of sellers who are not GST/HST registered. This is because registered sellers must increase prices to make some provision for payment of GST/HST. GST/HST registrants are, therefore, placed at a disadvantage simply because they are registered to collect taxes.
Purchasers in provinces with a separate tax will be paying tax on tax. The provincial tax will be charged on the item price (which includes GST), so it is in effect double taxation. Purchasers in these provinces could be greatly overcharged. For example, the tax in British Columbia is 12% (5% GST, 7% PST). Again, I’ll use the $100 example and a seller increase of 15% (to make allowance for the 15% jurisdictions). Rather than being charged $112, the purchaser would be charged $123.05 ($115 x 1.07).
GST/HST is payable on shipping. Shipping prices vary greatly in Canada and there will be no provision for GST/HST registered sellers to account for these taxes. This is especially problematic for those sellers using calculated shipping. A parcel, 17 x 12 x 11cm weighing 200 grams, costs $17.11 to mail locally. From BC to most New Brunswick locations, the cost would be $21.96. The seller is required to pay tax at 5% for BC and 15% for New Brunswick so out of pocket expense would be $0.86 and $3.30 respectively.
Quite obviously, sellers who are registered to collect GST/HST will be at a severe disadvantage. I sincerely hope that Etsy will implement a fair and equitable taxation method for all Canadian sellers effective July 1, 2022.
I'll be honest, being from the US, I'm not familiar with all the nuances of Canadian tax laws and regulations and how they may impact sellers, however this sounds like a giant mess in the making that could have absolutely been avoided and in fact other marketplaces have managed to implement these changes without putting the burden on sellers to add the tax into their prices.
Canadian Etsy Seller CindyLouWho2 has done a fantastic job tracking this issue and advocating for impacted sellers - check out her blog and give her a follow on Twitter for details!
If you're an Etsy seller in Canada, let us know in the comments below how this change is affecting your business!