Sales Taxes for Online and Digital Products – A Complete Guide by a Montreal CPA Firm Near You

Introduction

Selling digital products and online services in Canada is more complex than ever. Whether you run an online store, offer downloadable content, sell subscriptions, run a SaaS business, teach online courses, deliver coaching sessions, sell templates, or operate through platforms like Shopify, Etsy, Amazon, Patreon, or your own website, you must understand how GST/HST applies to digital products. In recent years, Canada enacted strict new rules requiring digital platforms, foreign sellers, marketplace facilitators, and remote service providers to charge sales tax—even if they have no physical presence in Canada. Misunderstanding these rules leads to uncollected tax, penalties, denied ITCs, and sales tax audits by CRA or Revenu Québec. This guide explains exactly how sales tax works for online and digital products in Canada and how to stay compliant.

Legal and Regulatory Framework

Sales taxes on digital products are governed by the Excise Tax Act and, in Quebec, the Tax Administration Act (TAA) for QST. Key rules include:

1. Digital Products Are Taxable Supplies

Most digital products and services are fully taxable, including:
• online courses
• downloadable PDFs, templates, software
• SaaS subscriptions
• digital marketing services
• membership platforms
• digital artwork, video, audio, and online products

GST/HST must be charged based on the customer’s province.

2. Marketplace Facilitator Rules

Under the 2021 “digital economy” amendments:
• platforms such as Shopify, Etsy, Amazon, Apple, Google Play, Airbnb, Uber may be required to collect GST/HST on your behalf.
• If the platform collects tax, you must NOT collect it again.
• You may still need your own GST/HST number depending on your revenue.

3. Remote Sellers (Non-Residents)

Foreign businesses selling to Canadians must register for GST/HST if:
• they sell $30,000+ in digital products to Canadian customers, or
• they provide streaming services, digital subscriptions, or remote services.

4. QST for Digital Sellers

Quebec enforces one of the strictest digital tax regimes:
• foreign and out-of-province sellers must register under the Specified QST System
• QST applies even without a permanent establishment in Quebec
• platforms must collect QST automatically for Quebec consumers

5. Input Tax Credits (ITCs)

Registered businesses can claim ITCs on GST/HST paid on expenses used to supply taxable digital products.

These laws form the regulatory foundation for sales tax on online and digital products in Canada.

Key Court Decisions

Courts have issued significant decisions shaping digital and cross-border sales tax compliance:

In Revenu Québec v. HomeAway, the court ruled that remote platforms must collect QST from Quebec consumers—even if not located in Quebec.

In Airbnb Ireland UC v. Revenu Québec, the court confirmed that digital platforms with Canadian users must comply with provincial digital tax rules.

In Movies Plus Ltd. v. Canada, CRA reassessed a business that applied incorrect sales tax rates on digital and online sales; the court upheld CRA’s strict interpretation of place-of-supply rules.

In Cornwallis Financial Corp. v. Canada, GST/HST classification errors led to denial of ITCs and large reassessments.

These decisions highlight the legal obligation to apply correct digital sales tax rules.

Why CRA and Revenu Québec Target This Issue

CRA and Revenu Québec aggressively target digital sellers because:

• many online businesses mistakenly charge GST instead of HST, or charge no tax at all
• digital creators often exceed $30,000 without realizing they must register
• e-commerce platforms may not automatically collect the correct tax
• foreign sellers frequently ignore Canadian rules
• online income is easily traceable through payment platforms
• high growth in e-commerce has increased non-compliance

Authorities cross-reference:
• Stripe, PayPal, and Shopify payouts
• Amazon/Etsy reports
• App Store/Google reports
• platform-issued T4A slips
• bank deposits
• CRA information-sharing agreements with platforms

Digital businesses have become one of the most audited sectors in Canada.

Mackisen Strategy

At Mackisen CPA Montreal, we help online sellers navigate complex digital tax rules and stay compliant. Our digital-commerce tax strategy includes:

• determining whether your online or digital product requires GST/HST/QST
• assessing whether platforms collect tax on your behalf
• registering your business for GST/HST and QST (if needed)
• creating a place-of-supply matrix for Canadian provinces
• setting up automated tax settings in Shopify, Etsy, Amazon, Stripe, and other platforms
• determining whether you must charge tax to U.S. or foreign customers
• preparing accurate GST/HST and QST returns
• optimizing ITC claims for digital business expenses
• defending clients during CRA/Revenu Québec digital tax audits

Our structured approach ensures complete and accurate compliance for all digital businesses.

Real Client Experience

A Montreal course creator selling through Teachable never registered for QST or GST. CRA sent a review letter for uncollected tax. We registered her retroactively, corrected filings, and prevented penalties.

A Shopify store owner charged 5% GST to customers in Ontario and Nova Scotia instead of HST. CRA assessed the uncollected tax. We corrected tax settings, recalculated returns, and negotiated manageable repayment terms.

A U.S. SaaS provider selling to Quebec customers was fined for failing to register under the Specified QST System. We registered them properly and ensured QST-compliant billing.

Another client selling digital subscriptions across Canada had inconsistent tax settings. We created a province-by-province matrix and automated compliance through their platform.

Common Questions

Online sellers often ask whether they must charge GST/HST to U.S. customers. Generally no—exports are zero-rated.
Others ask whether Etsy or Shopify collects tax automatically. Sometimes—depends on settings and seller location.
Some ask whether remote sellers must register. Yes—if selling to Canadians above the threshold.
Another common question: Are digital downloads taxable? Yes—almost always.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps digital creators, SaaS businesses, e-commerce stores, and online service providers stay fully compliant with Canada’s complex digital sales tax system. Whether you sell across provinces or internationally, our expert team ensures precision, tax efficiency, and total protection from CRA and Revenu Québec.