The events of 2020 and 2021 have caused a significant push for businesses to pursue the E-Commerce route. It’s tough to sell your product if your retail location is forced to close. It’s also tough to sell your handcrafted items if the markets are closed… or if you find your customers are just opting to stay home. The World Wide Web is a fantastic way to reach your customers in each of the 168 hours in a week. You now have customers across Canada… or perhaps the world. Congratulations! Perhaps it’s time to take a step back to make sure you’re not falling into some common E-Commerce mistakes.
1. Failing to calculate the true costs of your product.
You’ve got an awesome product to sell online. Do you know the TRUE cost of selling that item? What is the total cost to get your product into your customers’ hands? Calculating this true cost is a critical step in determining your business viability any sort of profitability analysis. Are these business efforts worth it? Or would it make more money taking that part-time minimum wage job?
Consider the following:
- Foreign exchange rates and potential for fluctuation.
- Shipping costs: Any import costs plus the cost to ship your product to your customers.
- Sales fees: Does your sales platform take a cut of your sales? Credit Card/merchant fees?
- What about your time? You’ve started a crafting venture. Have you considered the value of your time in making these products?
2. Failing to report income
The Canada Revenue Agency requires you to report your earnings from your e-commerce ventures. It may be tempting to omit these online earnings. Did you know that CRA is able to request payout reports from various online e-commerce platforms? That’s right. CRA is able to obtain your earnings reports. Don’t be fooled into thinking that CRA is only concerned with the “big fish” business owners out there. The fact is that the little guys are more likely to simply pay their tax assessments… so are perfectly content in pursuing small business as well. You’re far better off to report the earnings and related expenses from the start and don’t attract their attention.
3. Failing to register for GST/HST and PST
Put very simply, if you’ve got annual sales of goods and services in Canada of $30,000 or more, you should be registering for GST. This means you’ll need to charge sales taxes to your customers and remit them to the related government body.
Do you need to register for PST in the various provinces?
You’ve got customers in British Columbia? Saskatchewan? Manitoba? Quebec? Each province is different. Call me lazy (or considerate of your time), but I think the best advice I can offer here is to research each province based on your situation. Some provinces have fairly simple and straightforward guidelines… but others have very specific rules. Some PST publications read as though you have to register for PST… unless you happen to sell purple widgets to lefthanded people.
Check out the links to these publications:
As a final check of your understanding, go ahead and call the 1-800 numbers to the provinces. Talk to someone from the related sales tax department to gain more comfort to your responsibilities to their province.
Authors note: unlike the CRA helpline, the provincial bodies tend to provide great advice and service.
4. Failing to charge GST/HST and PST properly
Not charging sales taxes properly is an extremely common mistake in E-Commerce. It’s critical that your sales platform/website is set up correctly to navigate this. If you’ve got customers across Canada and the United States, do you fully understand who has to pay sales taxes and at what rate?
GST/HST- if you are registered for GST/HST, you must charge it based on the ship-to address.
- Not registered for GST or PST? DO NOT CHARGE IT. This is considered fraudulent.
- Customer in Ontario? Charge 13% HST
- Customer in Alberta? Charge 5% GST
- Customer in New Brunswick? Charge 15% HST
- Customers in the United States? Do not charge GST/HST
A very common mistake for businesses in Alberta is to simply charge the 5% GST to everyone. It’s a painful realization when CRA reviews their invoices to see that they should have charged a customer 15% and suddenly their profits disappear by way of their GST/HST filing.
5. Failing to enlist a professional accountant tax filings
An experienced, qualified professional accountant can assist you with your various filings, tax and sales tax obligations.
- What expenses can you reasonably deduct?
- When should you be registering for sales taxes?
- How do you file sales taxes?
- When should you consider incorporating your business?
If you don’t yet have a trusted accountant, we’re happy to help!
Angela Richardson is a Chartered Professional Accountant (CPA, CGA) with more than 17 years experience working in public practice with small to medium sized businesses. While financial statements and tax returns are part of the occupation, consulting and assisting clients to achieve their entrepreneurial dreams is her true passion.
