Sales Tax on Online and Digital Products

Introduction
Understanding sales tax on online and digital products is now essential for Canadian businesses, digital creators, SaaS platforms, subscription services, e-commerce sellers and foreign companies selling into Canada. As the digital economy grows, CRA and Revenu Québec have expanded tax rules to ensure sales tax applies to digital supplies such as online courses, streaming services, downloadable software, cloud subscriptions, apps, digital goods and digital memberships. These new rules are aggressively enforced, especially for suppliers outside Canada. Businesses that misunderstand sales tax on online and digital products face significant penalties, retroactive QST/GST assessments and denied input tax credits. This guide explains everything businesses need to know about charging, collecting and remitting sales tax on online and digital products.

Legal and Regulatory Framework
Sales tax on online and digital products is governed by the Excise Tax Act (GST/HST) and Québec’s Taxation Act (QST). As of recent legislative changes:

• Digital products and services are fully taxable unless specifically exempt.
• Non-resident digital service providers must register for simplified GST/HST.
• Foreign suppliers selling to Québec residents must register for QST.
• Marketplace facilitators must charge and collect GST/HST/QST on behalf of sellers.
• Subscription-based and SaaS services are subject to sales tax.
• Streaming platforms (Netflix, Spotify, etc.) must charge GST/HST and QST.

Tax applies to:

• digital downloads
• online courses
• paid webinars
• SaaS platforms
• membership sites
• online coaching programs
• website templates
• software subscriptions
• online advertising services
• e-books, digital art, photography
• marketplace sales for digital goods

Understanding sales tax on online and digital products ensures businesses charge the correct tax regardless of where they are located.

Place of Supply Rules for Digital and Online Products
Determining the correct tax rate requires applying place of supply rules:

• If the customer is in a province with HST, charge the relevant HST rate.
• If the customer is in a GST-only province, charge 5% GST.
• If the customer is in Québec, charge GST + QST.

Important: The customer’s billing address (and sometimes IP location) determines tax, not the seller’s location.

Examples:

• Ontario client → HST 13%
• Alberta client → GST 5%
• Québec client → GST 5% + QST 9.975%
• Nova Scotia client → HST 15%

Accurate place-of-supply rules are essential for charging sales tax on online and digital products.

QST Rules for Online and Digital Products (Québec)
Québec’s digital tax rules are stricter than federal rules. QST applies to:

• foreign digital sellers
• Canadian businesses located outside Québec selling to Québec customers
• marketplace platforms
• digital subscription services

Québec requires:

• registration under the Specified Registration System for foreign sellers
• full QST registration for Canadian businesses with Québec customers
• separate invoicing and remittance from GST
• strict documentation for refunds (ITRs)

Understanding QST rules is critical when managing sales tax on online and digital products.

Key Court Decisions
Canadian and international court rulings emphasize:

• digital services are considered taxable supplies even without physical presence
• foreign companies must register if supplying digital products to Canadian consumers
• invoices without proper tax disclosure may invalidate ITC/ITR claims
• marketplace facilitators are responsible for collecting tax on behalf of sellers
• cross-border transactions require accurate place-of-supply analysis

Québec courts have upheld aggressive enforcement of QST for non-resident digital suppliers.

Why CRA and Revenu Québec Target This Issue
Sales tax on online and digital products is a top audit focus because:

• digital sellers frequently fail to register
• foreign suppliers often misunderstand Canadian rules
• e-commerce platforms may misapply taxes
• input tax credits are sometimes claimed incorrectly
• cross-border transactions create confusion
• QST/GST inconsistencies are common in software and coaching businesses

Audit triggers include:

• large GST/HST refunds
• sudden increases in online revenue
• mismatches between e-commerce platforms and tax returns
• selling to Québec customers without QST registration
• use of payment processors located outside Canada

Understanding sales tax on online and digital products prevents costly audits and penalties.

Mackisen Strategy
Mackisen CPA provides a full-service digital tax compliance strategy:

• determining tax obligations for Canadian and foreign digital sellers
• registering for GST/HST and QST
• configuring Shopify, Stripe, PayPal, WooCommerce and Kajabi tax settings
• applying correct place-of-supply rules automatically
• analyzing SaaS and subscription revenue streams
• filing GST/HST and QST returns
• correcting past errors through voluntary disclosure programs
• supporting businesses during digital tax audits
• reconciling marketplace data with tax filings

Our structured approach keeps digital sellers fully compliant while maximizing ITCs and minimizing risk.

Real Client Experience
Many digital sellers come to Mackisen after facing sales tax issues:

• A U.S.-based coaching platform sold to Québec customers without QST—Revenu Québec issued a retroactive assessment. Mackisen corrected the registration and negotiated payment terms.
• A Canadian online course creator charged only GST, not HST or QST. We rebuilt their tax configuration and fixed past filings.
• A photographer selling digital prints worldwide misapplied tax rates. Mackisen created a global tax matrix and cleaned all returns.
• A SaaS company failed to charge sales tax until after crossing revenue thresholds. CRA demanded backdated GST/HST. We corrected filings through voluntary disclosure.

These cases show the importance of understanding sales tax on online and digital products.

Common Questions
Frequent questions include:

• Do digital products require GST/HST?
Yes—digital items are considered taxable unless specifically exempt.

• Do foreign sellers need to register?
Yes—if selling to Canadian or Québec consumers.

• Do subscription services charge tax?
Yes—SaaS and memberships are taxable.

• Does Québec require separate registration?
Yes—QST is separate from GST/HST.

• What determines the tax rate?
The customer’s province (place-of-supply rules).

• Are digital coaching services taxable?
Yes—GST/HST and QST apply to online coaching.

These answers help clarify sales tax on online and digital products.

Why Mackisen
With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps businesses stay compliant while recovering the taxes they’re entitled to. Whether you're filing your first GST/QST return or optimizing multi-year refunds, our expert team ensures precision, transparency and protection from audit risk. When managing sales tax on online and digital products, Mackisen provides complete registration, configuration, compliance and audit support to secure your digital operations.