Etsy seller taxes in Canada, decoded.

Etsy seller taxes in Canada are simpler than the dashboard makes them look. Etsy makes it easy to start selling, but between listing fees, transaction fees, processing fees, ads, shipping labels and currency conversion, many sellers have no idea what they actually earned. This guide explains it all in plain English.

It's written for Canadian sellers everywhere, with a few local notes for makers in Edmonton, St. Albert, Sherwood Park and Spruce Grove.

1Hobby or business?

There's no magic number where a hobby turns into a business. CRA looks at how you operate. If you're selling in a businesslike way with a view to making a profit, it's a business, even if it's small and even if you lost money this year.

Signs you're running a business:

• You list items regularly and restock what sells.
• You price above your costs, at least in intent.
• You spend on ads, photography or packaging to grow sales.
• You keep records and track what's working.

Say you knit a few scarves a year and sell the extras for roughly what the yarn cost. That probably looks like a hobby. If you run a shop with 80 listings, Etsy Ads and weekly sales, that's a business. A business reports its profit on the T2125, and can deduct its costs, including a loss in a slow year.

2Reading your Etsy payouts

Your Etsy deposit is what's left after Etsy takes its fees. If you record only the deposit as income, you'll understate your sales and miss a long list of deductible expenses. It can also leave your numbers out of step with what Etsy reports to CRA.

Download your monthly statement or CSV from Etsy and use it to record each month's sales and fees in one entry. Monthly is far easier than trying to match individual orders.

3What Etsy sellers can deduct

If you make physical products, materials work through cost of goods sold: what you used for items you sold this year. Unsold stock at year-end is inventory, not yet an expense. Our guide to handmade business bookkeeping explains inventory in detail, and your accountant can confirm whether your workspace qualifies for home office costs.

4GST and Etsy seller taxes in Canada

You must register for GST once your worldwide taxable sales pass $30,000 over four consecutive calendar quarters, or in a single quarter. That includes all your sales channels: Etsy, your own website, markets and wholesale. Sales count before fees, so a shop with $32,000 in sales and $9,000 in fees has still crossed the line.

Once registered, you charge GST or HST based on where your buyer is in Canada. In Alberta that's 5% GST, with no PST. How Etsy handles tax collection for registered sellers is something to check in your shop settings and with your accountant, so tax isn't charged twice or missed.

5Tax time for Etsy sellers

As a self-employed seller you pay income tax and both halves of CPP on your net profit. Your return is due June 15, but any balance owing is due April 30. If your net tax owing is more than $3,000 this year and in either of the two previous years, you'll need to pay quarterly instalments on March 15, June 15, September 15 and December 15.

Also convert USD amounts properly. If any of your sales or fees are in US dollars, record them in Canadian dollars using a consistent exchange rate, such as the rate on the date of the transaction or the Bank of Canada's annual average, and use the same method every year.

6Common Etsy tax mistakes

• Reporting payouts instead of sales. It understates your income and hides your fees.
• Forgetting other channels. Market sales, Instagram orders and your own website all belong on the same return.
• Expensing all materials at once. Product sellers need to account for inventory left at year-end.
• Counting sales tax Etsy collected as income.
• Ignoring the GST threshold because each channel on its own is small.
• Mixing personal and shop spending on one card with no notes.

Selling to buyers outside Canada

Many Canadian Etsy shops sell heavily to US buyers. If you're GST-registered, goods you ship to buyers outside Canada are generally zero-rated, which means no Canadian GST is charged, though the sales still count toward your $30,000 threshold. Foreign buyers may pay their own country's taxes or duties, which Etsy may handle at checkout. Save your shipping records, since they show the items left Canada.

A separate business bank account, even a basic one, makes all of this easier. When only shop money goes in and out, your Etsy statements and bank records tell the same story.

Getting your Etsy books in order

If you've been selling for a year or two without proper records, don't panic. Your Etsy statements and bank records are enough to rebuild your books, and your materials spending can usually be reconstructed from card statements and supplier order histories. Our catch-up bookkeeping service does exactly that, often for a year or more at a time. Plum works with Etsy and online sellers in Edmonton, St. Albert, Sherwood Park and right across Canada. Book a quick call and we'll help you work out where you stand.

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This article is general information for Alberta businesses and isn't tax or legal advice. Rules and thresholds change, so confirm your situation with your accountant or CRA.