Tax Guide for Etsy Sellers in Quebec: GST/QST Rules, Income Reporting, and Deductible Creative Expenses — CPA Firm Near You, Montreal

Introduction

Etsy is one of the most popular platforms for handmade products, crafts, jewelry, art, candles, digital files, and custom creations. But many Etsy sellers in Quebec are unaware of their tax responsibilities. Income from Etsy is fully taxable, GST/QST may apply earlier than expected, and product-based businesses must track inventory and materials carefully. This guide explains how Etsy sellers must report income, apply GST/QST rules, manage inventory, and claim deductions — and how a CPA firm near you in Montreal can help ensure full compliance.

Legal and Regulatory Framework

Under the Income Tax Act and the Taxation Act of Quebec, Etsy sellers must report all income earned from product sales, custom orders, digital downloads, and commissions. Because Etsy sellers typically sell taxable goods, GST/QST registration is mandatory once the small-supplier threshold is exceeded. Etsy may collect some taxes automatically, but sellers are still responsible for checking, reporting, and remitting correctly. Deductible expenses include materials, tools, equipment, packaging, Etsy fees, advertising, software, shipping, returns, and a portion of home office or studio space. CRA and Revenu Québec require structured bookkeeping, supplier invoices, and inventory tracking to support all expense claims.

Key Court Decisions

Courts have ruled that craft and handmade product sellers must maintain accurate records of materials, supplies, and cost of goods sold. Several decisions denied deductions because sellers could not provide receipts for crafting materials or mixed personal-use purchases with business supplies. Cases involving digital downloads confirm that these are taxable supplies requiring GST/QST collection. Judges also emphasize that payout summaries from Etsy do not replace proper bookkeeping.

Why CRA and Revenu Québec Target Etsy Sellers

Etsy provides sales and payout data directly to tax authorities, making it easy to identify underreported income. Auditors examine whether declared revenue matches Etsy analytics and whether inventory purchases correlate with sales volume. Missing receipts for materials, inconsistent cost-of-goods-sold calculations, and failure to register for GST/QST once required are common triggers. Digital sellers offering both physical and downloadable products attract extra scrutiny due to mixed tax rules.

Mackisen Strategy

At Mackisen CPA Montreal, we help Etsy sellers build a complete accounting, tax, and inventory system tailored to creative businesses. We determine GST/QST obligations, set up proper tax collection, and reconcile payout statements with bookkeeping. We build inventory tracking models for materials, supplies, and finished goods. We optimize deductions for equipment, tools, advertising, packaging, Etsy fees, and studio expenses. Our team prepares year-end filings, manages capital cost allowance for equipment, and ensures compliance with CRA and Revenu Québec rules. If audited, we defend your documentation, rebuild missing inventory records, and reduce reassessments.

Real Client Experience

A Montreal Etsy jewelry maker underreported revenue and lacked receipts for metals and stones. CRA began an audit based on Etsy payout data. We reconstructed inventory, validated supplier invoices, corrected sales-tax filings, and reorganized bookkeeping. The reassessment was significantly reduced, and the seller now operates with a compliant financial system.

Common Questions

Do Etsy sellers need to register for GST/QST?

Yes, once annual taxable sales exceed the small-supplier threshold.

Does Etsy collect GST/QST automatically?

Etsy may collect some taxes, but sellers must ensure correct reporting and remittance.

What expenses can Etsy sellers deduct?

Materials, tools, packaging, software, Etsy fees, ads, shipping, and home studio expenses.

How do I track inventory for handmade products?

Use a structured system tracking materials purchased, used, and converted into finished goods with receipts for all inputs.

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.