A Guide on Etsy Taxes for Sellers in Canada
As part of any online business that operates in North America, it’s important to comply with the tax rules, and you’ll need to learn about Etsy taxes in Canada. Like the other e-commerce platforms, Etsy makes it easier for creatives to get customers worldwide.
Etsy shop owners should pay taxes like any other profit-making business. There is also the need to know all the laws concerning taxes and the paperwork required for personal and your business's safety.
However, it is not a surprise that most Etsy shop owners don't fully know about taxes in Canada. Hopefully, you will understand how much tax to pay, depending on your Etsy shop's income, with the help of this guide. You also need to know different types of taxes for Etsy shop owners according to the law.
Without further ado, let us get started.
Etsy Canada Taxes
Artists with an Etsy shop should pay an income tax from their business. The Etsy website records all your Etsy sales and compiles them after a certain period. Therefore, you can use this information to know the amount of taxes you owe the government.
As a sole proprietor on Etsy, you should compile and report your income to the authorities. The amount you will pay for taxes depends on your net taxable income, calculated by deducting all the expenses.
Some of the tax deductions for your Etsy shop in Canada are:
Etsy sellers pay a fee to list items in their shop. However, this fee depends on the list and the listed items, and the charges are in US dollars. Since this is an expense, the shop owner should download their monthly reports to know how many deductions to make from their net income.
Etsy shop owners should then convert the amount into Canadian dollars to pay taxes because all the Canadian taxes are paid in CAD dollars.
There are many ways to advertise your Etsy shop. Some people use social media platforms like Instagram and Facebook, but you can also use Etsy Ads. If you use this platform for advertising your Etsy shop in Canada, the amount you use is considered an expense, so you will deduct it from the net income when paying taxes.
Which method of payment do buyers use to get items in your shop? Different payment methods have policies regarding an extra fee for the processing of credit cards. Some credit card companies charge a fee of 3 percent, while others charge more or less.
These charges are expenses, and you will deduct their costs from the total earnings to pay taxes. Ensure you get a monthly or annual statement to track the costs.
Inventories are not considered direct expenses, but they are taxed. You should record any inventory in the shop under Cost of goods sold, and they are under a purchased Asset. The inventories move into the Expense category called the Cost of goods sold after selling.
Every business has a method of transferring the items to the buyers. The shop owners choose the most suitable shipping methods for their shops depending on how affordable they are.
Shipping costs are expenses every Etsy shop owner should record to claim while paying the taxes.
To attract customers on Etsy and maintain good clients, you should make your items as appealing as possible. This requires the shop owner to take quality pictures of the products and give a good description.
To get quality pictures, you require a good camera and editing tools, which could cost a fee. If you are paying a subscription fee for your photo editing tools like Canva Pro, ensure you include it as an expense to your business.
Renting office space takes revenue from your business, and so you should claim any business space for expenses like rent and electricity. This includes home offices like the studio you set up your computer to run your business.
Paying Taxes on Your Etsy Shop Income
Since sellers get their income tax from Etsy, they are entitled to pay income tax on all the Etsy art sales they make. While paying income tax, they will also pay;
Profit or Loss from Business
Once you register an Etsy shop, you must pay taxes whether it is a business or not. You should fill out the correct tax forms to keep you safe from the law. However, some forms require your business to meet specific criteria.
All the civil servants pay taxes, and so should the self-employed citizens. However, the self-employed people who pay Canadian taxes are those earning over $400. According to the Canada Revenue Agency, the shop owner must fill out the correct forms if they make $400 from the business.
Is Your Etsy Shop For Business Or Hobby?
If you have listed your Etsy shop for hobby purposes, but it makes sales, the government recognizes it as a business, and you must pay taxes. However, if your shop does not expect profits, it is recognized as a hobby.
Nonetheless, if the shop is something you spend a lot of time in and the primary objective of creating it is to make sales and a profit, then it is a business, and you must pay taxes. If you started as a hobby and have started making profits, fill out the right tax forms to be safe with the government.
Do You Have To Pay Taxes On Etsy Sales Canada?
Yes. All the Etsy shop owners in Canada pay their taxes on the sales made. However, the government does not deduct these taxes directly, so the shop owners have to take care of them.
When calculating the taxes to pay from your Etsy shop, you must consider all the income and expenses. The shop owner deducts the costs from the total income received.
You Need To File a Sales Tax Return If Etsy Collects Taxes for You
Different states have various rules concerning Etsy taxes. Some compute the taxes and remit them on behalf of the shop owners, while in other states, you have to do all the work by yourself.
Besides, there are items exempted from tax, and Etsy might not consider this when compiling the taxable items. For example, food and downloadable digital products are accepted from Etsy taxes.
Besides, the website could mix the taxable and non-taxable items, and failure to look at the records could have you paying more. Filing a sales tax return is also essential for people who sell a mixture of things in their Etsy shop.
Determine the Products to Charge Etsy Sales Tax On
Etsy sellers collect taxes on most of their products, but not all. When opening your shop, check the list of taxable goods provided by your state. Most states will exempt food, clothing, and textbooks from Etsy taxes, so you should also not charge your customers.
Once you know everything about Etsy taxes in Canada, you will be safe from the arm of the law. Failure to pay taxes could cost you heavy fines because you are going against the government's policies. As the seller, you will also sell on Etsy in peace once you comply with all the rules on taxes.