Running an E-Commerce Store in Canada: Tax Obligations, GST/HST Rules, and Online Business Compliance

Introduction

E-commerce has become one of the fastest-growing business models in Canada, but it also comes with some of the most misunderstood tax obligations. Whether you sell through Shopify, Amazon FBA, Etsy, eBay, WooCommerce, TikTok Shop, or your own website, CRA expects full compliance with income tax, GST/HST, provincial sales tax, foreign reporting, and merchant-processor reconciliation. Many online sellers believe e-commerce is too “new” for CRA to regulate, but CRA audits digital businesses aggressively because online transactions leave a traceable digital record. This guide explains the complete tax obligations for Canadian e-commerce businesses and how to avoid costly reassessments.

Why E-Commerce Businesses Face Increased CRA Scrutiny

E-commerce stores often:
sell across provinces
sell internationally
use multiple merchant processors
operate on foreign platforms
hold inventory in Canadian or U.S. warehouses
use dropshipping suppliers overseas
receive revenue in foreign currencies
have high transactions volumes
This complexity makes it easy for sellers to misreport income or GST/HST obligations. CRA uses third-party data from Amazon, Shopify, PayPal, Stripe, Etsy, and foreign tax authorities to identify inconsistencies.

Income Tax Obligations for Online Sellers

All e-commerce revenue must be reported, including:
product sales
shipping charges
affiliate and referral income
membership or subscription income
digital product sales
ad revenue or influencer income related to your store
Refunds and chargebacks must also be tracked accurately. Net income is calculated by deducting business expenses such as:
inventory purchases
website hosting and apps
advertising and influencers
shipping supplies and fulfillment fees
merchant fees
software subscriptions
packaging costs
professional services
home office expenses
CRA audits e-commerce businesses frequently when records are incomplete or merchant statements do not reconcile to reported sales.

GST/HST Requirements for E-Commerce Stores

Businesses must register for GST/HST once revenue exceeds $30,000 in any 12-month period. GST/HST applies to:
Canadian product sales
Canadian digital product sales
Canadian shipping charges
Some businesses must charge GST/HST immediately, even before reaching $30,000 (depending on structure).
OUT-OF-PROVINCE SALES: GST/HST rate depends on the customer’s province.
INTERNATIONAL SALES: Exports (outside Canada) are usually zero-rated but require documentation to support exemption.
Incorrect GST/HST rates are one of the biggest audit triggers for online sellers.

PST Rules for BC, Saskatchewan, and Manitoba

Some provinces have their own sales tax rules. For example:
BC: PST registration required if selling taxable goods to BC customers (even online)
Saskatchewan: PST applies to many digital products
Manitoba: PST applies to some software and digital services
E-commerce sellers frequently miss these obligations and face provincial reassessments.

Dropshipping, Amazon FBA, and Cross-Border Compliance

If you use:
Amazon FBA warehouse storage in the U.S.
third-party dropshipping suppliers outside Canada
foreign fulfillment centers
you may face:
U.S. sales tax obligations
import duty obligations
U.S. state nexus rules
FIRPTA and U.S. reporting if selling U.S. real property interests
Foreign filings (W-8BEN, W-9 depending on platform)
Canadian import-duty reporting
CRA and IRS both monitor e-commerce flows closely, and errors can trigger cross-border audits.

Merchant Processor Reporting Requirements

CRA receives transaction summaries directly from:
Stripe
PayPal
Square
Shopify Payments
RBC/Moneris
Amazon Payments
If your reported income does not match these reports, CRA assumes underreported sales. Sellers must reconcile:
bank deposits
merchant processor statements
sales from all channels
refunded and cancelled orders
chargebacks
currency conversions
Improper reconciliation is one of the most common reasons online sellers face audits.

Inventory and COGS Tracking for E-Commerce

CRA requires sellers to maintain:
opening inventory
purchases during the year
closing inventory
COGS = Opening Inventory + Purchases – Closing Inventory
Dropshipping also requires tracking cost of goods sold, even if inventory is not physically held by you. Poor inventory documentation results in inflated taxable income during audits.

T1135 and Foreign Reporting Requirements

If the cost of foreign assets exceeds $100,000 CAD, sellers must file T1135. This includes:
U.S. Amazon FBA inventory
foreign PayPal balances
foreign investment accounts
crypto used for purchasing inventory
Failure to properly complete T1135 leads to penalties starting at $2,500.

Common CRA Audit Triggers for E-Commerce Sellers

Shopify total sales not matching tax returns
PayPal or Stripe deposits exceeding reported revenue
incorrect GST/HST rates
missing inventory records
dropshipping without proper documentation
unreported foreign sales
unfiled T1135 for U.S. FBA inventory
improper write-offs that appear personal
heavy ad spending without matching revenue
CRA targets e-commerce because automated data makes discrepancies easy to detect.

Bookkeeping Requirements for Online Stores

E-commerce sellers must keep:
purchase invoices
sales reports from each platform
merchant processor statements
inventory logs
shipping receipts
digital product download logs
subscription payment reports
advertising invoices
product testing receipts
Apps like QuickBooks Commerce, A2X, and Bench integrate directly with Shopify and Amazon to simplify compliance.

Mackisen Strategy

At Mackisen CPA Montreal, we help e-commerce sellers build tax-efficient structures, manage GST/HST rules across provinces, prepare T1135 filings, track inventory, reconcile merchant accounts, and defend CRA audits. We also assist with dropshipping, Amazon FBA, international sales tax, and U.S. cross-border tax exposure.

Real Client Experience

A Montreal Shopify seller corrected three years of underreported PayPal income through full reconciliation. An Amazon FBA business avoided CRA penalties after rebuilding COGS and T1135 compliance. A dropshipper selling high-volume digital products reduced GST/HST exposure by restructuring transactions. A TikTok Shop brand avoided reassessment through accurate provincial tax tracking.

Common Questions

Do I need to charge GST/HST before $30K? Sometimes, depending on your business structure. Do I need to file T1135 for Amazon FBA? Yes if foreign assets exceed $100K. Are digital products taxable? Yes for Canadian customers. Does CRA audit e-commerce more than regular businesses? Significantly more.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal ensures e-commerce businesses stay fully compliant with tax law, maximize deductions, and avoid CRA audits through expert planning, reconciliation, and reporting.