Commerce Tax Compliance for Shopify/Amazon Sellers

Introduction
Understanding e-commerce tax compliance for Shopify Amazon sellers is essential for online entrepreneurs, drop shippers, marketplace sellers, influencers, and digital business owners operating in Canada. Selling through Shopify, Amazon (FBA and FBM), Etsy, eBay, Facebook Shops, or TikTok Shop creates tax obligations that many new sellers overlook. CRA requires reporting all online income, collecting and remitting GST/HST, tracking inventory costs, and maintaining full accounting records. Revenu Québec enforces even stricter rules for QST collection, cross-border fulfillment, and online marketplace transactions. Mistakes can lead to reassessments, penalties, frozen Shopify payouts, Amazon account holds, and lost revenue. This guide explains everything you need to know about e-commerce tax compliance for Shopify Amazon sellers.

Legal and Regulatory Framework
E-commerce tax compliance for Shopify Amazon sellers is governed by the Income Tax Act, CRA GST/HST rules, the new marketplace facilitator rules, income-tax reporting rules for online business income, Form T2125 for self-employed sellers, full corporate tax requirements for incorporated sellers, QST rules under the Québec Taxation Act, TP-80 business reporting, and digital sales tax obligations for cross-border shipments. CRA monitors online sellers through payment processors, marketplace reporting, third-party data sharing, and bank deposit reviews.

Reporting Online Business Income
All income from e-commerce activities must be reported to CRA, whether earned through:
Shopify storefronts
Amazon FBA/FBM
Etsy
eBay
Facebook Marketplace
TikTok Shop
affiliate programs
dropshipping
digital products or courses
Even cash transactions or peer-to-peer transfers must be reported. CRA receives electronic seller data from Amazon, Shopify, PayPal, Stripe, and other processors, making non-reporting nearly impossible.

T2125 or T2 Corporate Filing Requirements
Self-employed sellers report business income using Form T2125, while incorporated sellers file a T2 corporate return. Both require reporting:
gross online sales
returns and discounts
COGS
merchant and platform fees
advertising spend
shipping, packaging, fulfillment fees
inventory adjustments
Bookkeeping must be accurate because CRA specifically audits e-commerce COGS and gross margins.

GST/HST Obligations for E-Commerce Sellers
Shopify and Amazon sellers must collect GST/HST on Canadian sales once they exceed the $30,000 small-supplier threshold or begin business activity with the expectation of surpassing it. GST/HST rules apply regardless of whether:
products are sold from home
products are shipped via Amazon warehouses
dropshipping suppliers fulfill orders
physical products or digital products are sold
E-commerce tax compliance for Shopify Amazon sellers requires setting proper tax settings inside Shopify, Amazon Seller Central, and payment processors.

Marketplace Facilitator Rules
Under new Canadian legislation, platforms such as Amazon and Etsy may collect GST/HST on behalf of sellers in certain cases. However:
Shopify is not considered a marketplace facilitator — sellers must collect GST/QST themselves.
Amazon collects GST/HST on some FBA sales but may not handle all tax types or provinces.
Sellers remain responsible for verifying tax collection and ensuring correct remittance.

QST Obligations for Québec Sellers
Québec requires:
QST registration for sellers with Québec customers
TPS/TVQ registration for sellers with over $30,000 in taxable sales
TP-1 reporting for self-employed income
filing online sales income using business codes
Marketplaces selling into Québec may collect QST, but Shopify sellers must configure QST settings manually. Revenu Québec aggressively audits online sellers for unreported sales, COGS issues, foreign fulfillment, and dropshipping operations.

Selling to U.S. Customers
Selling physical products to U.S. customers does not generally require registering for U.S. sales tax unless:
you store inventory in U.S. Amazon warehouses
you exceed state economic nexus thresholds
you create physical presence through logistics partners
Amazon FBA often triggers nexus automatically. Non-compliance can result in Amazon withholding payments or state-level assessments.

Dropshipping Tax Rules
Dropshipping creates complex tax obligations because sellers may:
never touch inventory
sell goods shipped from foreign warehouses
pay suppliers through invoices
Still, CRA considers sellers as carrying on business in Canada. GST/HST must be charged to customers even if goods ship from overseas. Customs duties, import GST, and shipping expenses must be tracked separately.

Inventory and COGS Tracking
Proper COGS tracking is mandatory. Inventory must be valued using:
FIFO
weighted average cost
CRA requires consistent valuation and detailed records of:
inventory purchases
freight-in costs
duties and customs
Amazon fulfillment fees affecting landed cost
Inventory adjustments affect profit and loss and are a major audit area.

Shipping, Fulfillment, and Merchant Fees
Sellers may deduct:
Amazon referral fees
Shopify merchant fees
Stripe/Shopify Payments fees
PayPal fees
Amazon FBA fulfillment fees
third-party logistics (3PL) fees
shipping and postage
Packaging costs
But sellers must keep all documentation. CRA often requests merchant fee statements.

Digital Product Sales Taxes
Sellers offering digital downloads, e-books, templates, software, or subscriptions may need to collect GST/HST and QST even with no physical product. Digital service rules apply nationally and in Québec.

Income Tax for E-Commerce Sellers
Income tax applies on profit:
gross sales – COGS – expenses
Self-employed sellers pay personal tax plus CPP. Incorporated sellers pay corporate tax plus shareholder tax on distributions. CRA audits online business income for cash-flow inconsistencies and unexplained deposits.

Foreign Assets and T1135
If sellers use foreign payment processors, offshore warehouses, foreign Amazon FBA storage, or hold funds in overseas fintech accounts (Payoneer, Wise, Revolut, Mercury), they may need to file T1135 if total foreign property cost exceeds $100,000 CAD.

Common E-Commerce Tax Mistakes
failing to collect GST/QST
incorrect Shopify tax settings
not registering for GST/HST early enough
using Amazon without tracking FBA nexus
misreporting foreign supplier invoices
incorrect COGS calculations
forgetting to file T1135
not reporting dropshipping revenue
mixing personal and business bank accounts
These mistakes frequently trigger CRA or Revenu Québec audits.

Key Court and CRA Positions
Courts confirm that e-commerce is treated the same as any business. CRA enforces strict gross-revenue reporting, inventory valuation rules, GST/HST compliance, FBA nexus implications, and foreign reporting. CRA has used third-party data from Amazon and Shopify in court to prove underreporting.

Why CRA and Revenu Québec Audit E-Commerce Sellers
Audit triggers include:
sudden spikes in sales
low reported profit margins
high refunds or chargebacks
foreign fulfillment patterns
unreported GST/QST
foreign payment processors
dropshipping supplier mismatches
unreported Amazon/Shopify sales
Bank deposits that exceed reported sales
Marketplaces share seller data with CRA and ARQ directly.

Mackisen Strategy
Mackisen CPA helps Shopify and Amazon sellers stay fully compliant. We set up GST/HST/QST systems, configure Shopify and Amazon tax settings, prepare T2125 or corporate tax returns, track inventory and COGS, handle Amazon FBA nexus analysis, prepare foreign tax filings, and defend clients in CRA or ARQ audits. We also assist with bookkeeping automation and e-commerce accounting software integrations.

Real Client Experience
A Montreal Shopify seller underreported GST; Revenu Québec issued a $45,000 assessment. Mackisen corrected filings and negotiated payment terms. A Toronto Amazon FBA seller received IRS nexus notices; we handled compliance and prevented account suspension. A Québec dropshipper using AliExpress had no COGS records; we rebuilt the books and passed a CRA audit. A U.S.-based Shopify Payments mismatch triggered CRA review; Mackisen resolved the discrepancy.

Common Questions
Do I need to collect GST/HST on Shopify? Yes once you exceed $30,000 or begin commercial activity.
Does Amazon collect GST/HST for me? Sometimes, not always.
Do I need to file taxes if I made little profit? Yes — gross income must be reported.
Do dropshippers need to charge tax? Yes on Canadian sales.
Do I need to file T1135 for foreign accounts? Yes if foreign assets exceed $100,000.
Does Québec require QST for e-commerce? Yes — strict rules apply.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Shopify Amazon sellers master e-commerce tax compliance, avoid audits, optimize deductions, and scale their online business with full accuracy and protection. Whether preparing tax returns, configuring sales tax systems, or resolving CRA/ARQ disputes, our expert team ensures your business stays compliant and profitable.