Running an E-Commerce Store: Tax Obligations – A Complete Guide by a Montreal CPA Firm Near You

Introduction

With Shopify, Amazon FBA, Etsy, TikTok Shop, and other online platforms exploding in popularity, thousands of Canadians are now running e-commerce businesses. But while selling online feels simple, the tax obligations are not. E-commerce owners must comply with income tax, GST/HST, QST, inventory rules, foreign seller rules, platform reporting, merchant account tracking, and cross-border obligations if selling outside Canada. Many online sellers unknowingly trigger audits by mixing personal and business funds, failing to charge GST/HST, or incorrectly reporting cost of goods sold. This guide explains everything Canadian e-commerce entrepreneurs must know about taxes.

Legal and Regulatory Framework

E-commerce taxation is governed by the Income Tax Act, the Excise Tax Act, provincial sales tax laws (including Quebec QST rules), and CRA digital-commerce policies. Online businesses must report worldwide business income, expenses, and cost of goods sold on Form T2125 (sole proprietors) or a corporate T2 return (incorporated businesses). GST/HST registration is mandatory once you exceed the $30,000 small supplier threshold in any 12-month period—or immediately if you carry on business in Canada through commercial activity. Quebec sellers must also comply with QST rules administered by Revenu Québec.

Key Court Decisions

In Comeau v. Canada, the court confirmed that online sellers must report income even from informal or cash-based platforms. In Kosinski v. Canada, CRA denied cost-of-goods-sold deductions where documentation was incomplete, reinforcing strict inventory rules. In Brooks v. Canada, courts validated CRA’s authority to reassess income from online sales detected via third-party information (payment processors, marketplaces). These cases show CRA’s aggressive enforcement of e-commerce compliance.

Income Tax Obligations for Online Sellers

Online businesses must report: revenue from all platforms (Shopify, Amazon, Etsy, eBay, TikTok), shipping income, affiliate commissions, digital product sales, subscription or membership revenue, dropshipping profits, and foreign sales. Expenses must be reasonable and well-documented, including: inventory purchases, packaging, merchant fees, payment processing fees, advertising (Google, Meta, TikTok), software subscriptions, website hosting, warehouse fees, shipping, home office deductions, and contractor payments. CRA requires detailed records for all business transactions.

Cost of Goods Sold (COGS) and Inventory Rules

COGS is one of the largest deductions for e-commerce businesses and must be calculated correctly. CRA expects businesses to track: opening inventory, purchases, shipping to Canada, customs/import duties, adjustments for damaged or unsellable items, closing inventory. Incorrect COGS calculations are a major audit trigger. Dropshippers must track supplier invoices, even if they never hold inventory physically.

GST/HST and QST Obligations

Once an e-commerce business exceeds $30,000 in taxable sales in any 12-month period, GST/HST registration is mandatory. Sellers must: charge GST/HST on taxable Canadian sales, remit collected tax, file returns on time, claim input tax credits (ITCs), and follow destination-based tax rules for online services and digital goods. In Quebec, QST registration is required for most sellers—even non-residents—under strict rules for digital services and physical goods shipped to Quebec customers.

E-Commerce Platforms and Tax Compliance

Platforms like Shopify and Amazon do not file your taxes for you. You must still: download transaction reports, reconcile merchant payouts, track refunds and chargebacks, categorize fees, and account for marketplace commissions. Amazon FBA sellers must also track multi-jurisdiction storage locations and understand sales tax rules if selling cross-border, especially into the U.S.

Selling to U.S. or International Customers

Selling across borders triggers additional tax considerations: U.S. sales tax (depending on economic nexus thresholds), customs/duties, withholding tax on certain digital products, and additional reporting for foreign income. While Canada taxes worldwide income, foreign jurisdictions may require filings depending on volume and logistics.

Common CRA Audit Triggers for E-Commerce

CRA frequently audits online sellers for: failing to report platform income, unexplained deposits from Stripe/PayPal, high advertising cost relative to revenue, missing COGS documentation, GST/HST non-registration, personal expenses claimed as business expenses, unreported foreign sales, dropshipping transactions with incomplete records, and incorrect inventory reporting.

Mackisen Strategy

At Mackisen CPA Montreal, we help e-commerce owners structure their business for tax efficiency and compliance. We prepare T2125 and corporate filings, set up GST/HST/QST registrations, optimize COGS calculations, reconcile platform data, implement bookkeeping systems, prepare U.S. sales tax filings when required, and defend clients during CRA audits. Our end-to-end e-commerce tax solutions ensure accuracy and full compliance.

Real Client Experience

A Montreal Shopify seller faced CRA audit over missing COGS documentation; we reconstructed records and avoided reassessment. An Amazon FBA seller incorrectly charging GST/HST was corrected and registered properly. A dropshipping entrepreneur with thousands of Stripe deposits avoided penalties after we matched supplier invoices to sales. A TikTok seller with U.S. buyers avoided double taxation by applying Treaty provisions and proper reporting.

Common Questions

Do I need to register for GST/HST if I am dropshipping? Yes—if you exceed $30,000 or carry on business in Canada. Do platforms report my income to CRA? Yes. Do I pay tax on U.S. sales? Yes—in Canada; possibly in the U.S. depending on volume. Do online sellers need bookkeeping? Absolutely—payouts and fees must be reconciled.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadian e-commerce owners stay compliant while maximizing deductions, reducing audit risk, and optimizing tax strategies across Canada and the U.S. Whether you're a Shopify beginner or a high-volume Amazon FBA seller, we provide the guidance you need to grow safely.