Does Etsy submit your taxes?—This and more in our Canadian seller tax guide

First, you’ll need to calculate income tax on the money you earn. Second, you might have to charge sales tax to customers as well. Plus, when you’re selling on Etsy, you have to navigate all this via its vendor platform.

Figuring out how to charge and pay taxes as an Etsy seller might not be the reason you set up shop, but it’s an important part of entrepreneurship—and it’s not something you want to put off till later, unless you don’t mind paying the government fees and interest or possibly getting audited. (We’re guessing no.)

To help you understand how the whole thing works, we asked Jennifer Long, a Vancouver-based tax expert and part-time Etsy seller of downloadable prints, to explain Etsy and taxes. Here’s what she had to say.

Etsy and income tax

“One important thing to remember is that we have to report all sources of income earned throughout the world, in Canada,” Long says. And that includes not just money you earn at jobs, but money you make from your business, no matter how small it is. (This article only covers taxes for those unincorporated small businesses.)

Most Etsy sellers, Long says, run their businesses as sole proprietorships. This means you report your business income together with other income on your personal income tax return, called the T1, using a business income and expense form called the T2125. “That’s where you summarize all your self-employed activities,” Long says. “[That includes] the income you’re generating on Etsy as well as the associated costs for your business.”

Start with your revenue

One common error sellers make, Long says, is not reporting their income in full. “Income is the selling price.” That is gross sales before taxes, not the money that lands in your bank account.

It would be awesome if Etsy provided a handy, concise year-end statement outlining your total revenue in Canadian dollars as well as any fees it collected, which are deductible. But it doesn’t. So, that’s essentially what you want to create for yourself, using the reporting tools available, Long says. “You are 100% responsible for recording and tracking your income over time.” You’re also responsible for providing a record of expenses paid to earn that income.

Calculate expenses

As a small business in Canada, you pay income tax on your net profit, not your gross revenue: the total amount of money you bring in minus eligible expenses. Pay attention to and track business-related expenses so when you file your taxes, you’re paying the right amount—and no more.

Etsy’s fees, payment processing fees, Etsy advertisement costs and shipping costs are common business expenses for the platform’s sellers, Long says—but there are a lot of other expenses to consider as well. To decide whether something is a valid business expense, she adds, put on your “business crown” and ask yourself, “Would I be making this purchase if I weren’t trying to move my business forward?” If yes, then it’s likely not deductible from your taxable income.

What’s considered to be “deductible” is the expense related to earning the business income. Any expenses that are “mixed use,” meaning they can be used for both personal and business purposes (like a home office or car), must be pro-rated to reflect business use only.

When you’re making physical items to sell, one obvious expense is raw materials and other items that you need to create a finished product—this is a special category termed “cost of goods sold,” Long says. But there are myriad other expenses to include, like software and subscriptions (think Canva or Adobe), website hosting and email, tools, or paying people to help with your social media or bookkeeping. These costs are related to doing business and earning revenue, and you want to make sure you’re tracking them in categories and keeping the receipts in an easily retrievable manner, so that you can claim them at tax time and be audit-proof, too. (Does your small business or side hustle need insurance?)

Also be aware that there are two types of expenses.  Current expenses are deductible as described above.  But if you purchase an asset with a useful life of more than one year—such as furniture, a car or machinery—a full tax write-off is not possible. Rather, a percentage of the value of the asset will be claimed as a deduction known as Capital Cost Allowance (CCA), which allows for wear and tear over time. Claiming the full costs in the year the item is purchased is a mistake taxpayers often make.    

Pay your taxes

If you have a “day job,” your employer usually deducts income tax and Canada Pension Plan (CPP) and Employment Insurance (EI) contributions and submits them to the Canada Revenue Agency (CRA) on your behalf. When you’re self-employed, though, that task falls to you. Notably, both the employer’s and employee’s portion of the CPP must be remitted when you file your return, together with the taxes.

Self-employed individuals get an extension on filing their taxes—they’re not due until June 15. (For 2024, it’s June 17, as June 15 is a Saturday.) However, any amount owing was due by April 30. “You might incur a bit of interest if you wait till the June 15 deadline to pay,” Long says.

While the amount of income tax you’ll have to pay depends on your overall financial situation for the year, a good guide is to put aside about 20% to 30% of your net business income to hand over to the CRA at tax time, especially because of the CPP obligation. Newer and smaller businesses generally have to submit this amount annually with their return, but in a lot of cases—especially if your income is higher—you might need to make payments throughout the year as well. You can check your CRA My Business account or call the CRA helpline (1-800-959-8281) to find out if this applies to you. Tax-filing software can also compute this for you.

Does Etsy submit your sales taxes?

Like many things in Canada, sales tax gets complicated when you (or your products) cross provincial borders. There are rules on how much to charge customers and rules on whether you need to charge them at all—plus there’s the matter of how Etsy handles sales tax. Let’s break things down one by one.

GST/HST basics for small businesses

GST/HST is a federally administered sales tax. The percentage you charge is based on “place of supply,” which is where the buyer is receiving the product. This amount varies based on location, from 5% to 15%. That means that even if you live in Ontario, if you’re selling on Etsy to someone in Nova Scotia, you must charge that province’s rate of 15% and not the Ontario rate of 13%.

But wait, there’s more! (Of course, there is.) Not every small business is required to charge GST/HST. The threshold is $30,000 in applicable sales within a 12-month period, including worldwide sales, which you calculate in Canadian dollars. If you make less than that—across all your self-employment income, not just your Etsy shop—you’re considered a “small supplier” and aren’t required to register for or collect GST/HST.

What happens once you hit that $30,000 in sales? Long says: “Then it is mandatory to register and get a GST or HST number” and to charge sales tax to your customers and remit it to the CRA. And once you’re registered for GST/HST, you have to keep charging it unless you close your account—even if your income dips back below $30,000 in 12 months.

Long points out that you don’t have to wait until you reach $30,000 in income to register for the GST/HST. There’s no reason you can’t do it sooner, and there might even be advantages to doing so, especially if you pay a lot of GST/HST on business expenses. That’s because you can earn “input tax credits” to offset the GST/HST payable, and in some cases, receive a refund.

When you have a GST/HST number, you have to file an annual tax return to the CRA that’s separate from income tax. At its simplest (and it can get more complicated), this GST/HST return adds up the GST/HST you’ve collected from buyers and subtracts the GST/HST you’ve spent on business expenses (the input tax credits, or ITCs); the remainder is how much you need to transfer to the CRA. You can choose to file GST/HST annually, quarterly or monthly. It’s a good idea to set this money aside. 

Changes to GST/HST for Etsy sellers

This is where things may get tricky. A few years ago, the CRA brought in new rules on how online platforms should be handling sales tax. In response to this, Etsy revamped its own procedures when it comes to GST/HST. There are now two categories of Canadian sellers on Etsy, and each has to handle GST/HST a certain way.

1. Small sellers—those without a GST/HST number—don’t need to do anything. “Etsy handles all the GST and HST obligations on their end,” Long says. “They’re making sure tax is collected and remitting it to the government.”
2. GST/HST registered sellers—those registered with a GST/HST number—must handle their tax obligations themselves. There’s no mechanism in Etsy to add this sales tax to applicable purchases; sellers must set their prices to include GST/HST. “This is where pricing becomes a bit of a complex issue,” Long says. “Remember, you have to remit GST/HST based on the place of supply—and provincial rates will vary. You’ll want to charge an average price that absorbs fluctuations in sales taxes.”

The small sellers have it easier than the other group, as long as their income stays below the $30,000 gross revenue threshold. But the GST/HST registered sellers have more responsibility and red tape: they need to stay on top of how much federal sales tax they’re charging and collecting.

When Etsy does submit provincial sales tax for Etsy sellers

This is where things get a little easier. “Etsy is charging and remitting provincial sales tax where needed on certain products and to certain provinces,” Long says. This includes B.C., Saskatchewan and Manitoba (where it’s technically called a “retail sales tax”).

As for Quebec, the rules on QST are similar to those for the federal GST/HST. If you’re a small supplier (gross sales not exceeding $30,000 in a 12-month period), Etsy will handle this for you. If you’re not a small supplier and are selling to customers in Quebec, you should register for a QST number and share the account number with Etsy, after which you’ll have to include QST in your pricing and remit where necessary.

Bookkeeping tips for Etsy sellers

To ensure you have access to the information you need for as long as you need it—which is important for future tax audit purposes—Long suggests downloading and saving your Etsy reports: the monthly reports, as well as detailed transaction data. Also save bank and credit card statements related to your business, together with the individual receipts related to the transactions.

The “burden of proof” is on the tax filer. You must keep receipts for seven years after you receive the Notice of Assessment or Reassessment from the CRA, whether in print or digitally.

“I really like using an accordion file so it’s all nicely lined up,” Long says. “If I need to go back to it, I can easily figure out what my raw materials were that year, or what I spent on marketing.” Organize your receipts by category. For example, keep all auto expenses, office supplies, subcontracting costs, and so on, together. This will be very helpful at tax time and if you get audited. 

Newer and smaller sellers might be happy simply tracking their data with spreadsheets—Long recommends the downloadable templates by Etsy seller Made on the Common—while businesses that are more complex or looking to grow might be better off with software like QuickBooks Online, which can link with your Etsy account to automate some data collection.

Seek support when you need it

“Nobody starts a business because they’re really excited to do their taxes,” Long says. Similarly, you probably didn’t start an Etsy business because you’re good at doing taxes. (If both were true, you’d probably be an accountant.) But that doesn’t mean you can’t learn to manage your bookkeeping well. It’s a critical piece for your business. You must do it. An audit can derail both your business and financial plans, because it is time-consuming and expensive.

So, if you find taxes confusing or have no aptitude or time for it, ask for help: you can call the CRA (or the relevant provincial body) for help with specific questions about your obligations, hire a professional or reach out to the Etsy community. “It is a pretty niche area,” Long says of Etsy income and taxes specifically. “It’s worthwhile to find someone who has familiarity and experience.”

Read more about filing income tax:

• Self-employed? Here’s how to file taxes for a side hustle
• How are you taxed when you sell a small business?
• Audit-proof your side hustle
• The basics of starting your own business
• How are Uber drivers and other gig workers taxed in Canada?

About Kat Tancock

Kat Tancock is a writer, editor, translator and content strategist based in B.C. She writes for publications including The Globe and Mail, Chatelaine and Asparagus.

Linkedin Website