Tax Calculations for Canada-Based Stores

Last Updated: Jun 17, 2014 05:23PM EDT

About calculating taxes in Canada with ProductCart


In Canada taxes on retail sales are calculated differently in different regions of the country. Therefore, Canada provides a good way to further describe how tax calculation works in ProductCart using the Tax by Zone feature. Specifically, in Canada:
  • Some provinces charge a Provincial Sales Tax (PST or RST for 'Retail Sales Tax'), but the rate is not the same in all the provinces.
  • All provinces also charge a federal tax on goods and services, called the 'GST'.
  • Nova Scotia, New Brunswick, and Newfoundland charge a Harmonized Sales Tax (HST) of 14 percent that combines both PST and GST.
  • In Quebec, the local tax is calculated on a total that includes the GST whereas in Ontario both PST and GST are calculated on the order total excluding other taxes.

Similarly to many other countries, in Canada you need to pay sales taxes in a Province in which you don't reside if your business is considered to have a presence there (e.g. the existence of a branch office, warehouse or storage facilities, a post office box, employees, agents, etc., in a certain province). So you might need to calculate and pay sales taxes beyond the province in which you have your business headquarters.

This is why it is important to be able to correctly calculate taxes in the different regions. And that's where the Tax by Zone feature in ProductCart becomes very useful.

If you have certain customers who are exempt from PST due to having an exemption certificate they can be be granted an exemption.

 

Ontario Retail Sales Tax (RST)


For example, assume that you want to add the Ontario Retail Sales Tax (RST).
  • Select Settings > Tax Settings and choose to perform Manual Tax Calculation (meaning that you are not using a tax data file to calculate the tax rate).
  • Since the Ontario RST is calculated on the total including delivery and handling charges, include both (Include shipping charges = Yes; Include handling fees = Yes).
  • Under Display taxes separately? select Yes and move to the next screen
  • On the new window that is displayed, select Tax by Zone. Activate that feature and define your first zone, which is the province of Ontario.
    • Choose a name for this zone (e.g. Ontario)
    • Choose a country (Canada)
    • Choose a province (Ontario)
    • Save the zone
  • You can now create a new zone or continue. Let's continue and then come back here to create new zones later.
  • On the Add/Edit Tax Rate by Zone:
    • Select the zone (e.g. the one we just created called “Ontario”)
    • Enter a description (e.g. “RST”) and a type (e.g. “Ontario Sales Tax”: this is for your own reference)
    • Enter the tax rate applied to most goods, without the percent sign (e.g. “8” for 8%).
    • Specify the order. If there are multiple tax rates (e.g. RST and GST), you can set the order in which you want the taxes applied on them.
    • Apply tax to Shipping & Handling
      If you want this rate to tax shipping and handling, you would check this box to enable that feature. Here you would check this box since Ontario RST is calculated on a total that includes both.
    • Apply this tax only to customers in the same state/province as your store
      Leave this check box unchecked if you have a presence business presence in this zone, regardless of the location entered in your Store Settings. For example, your store settings might indicate that you store is in British Columbia, but if you also have a warehouse in Ontario, you need to pay sales taxes in Ontario too. If you only have one location and that's the address that you entered in your Store Settings, then you will need to check this check box.
  • This tax is taxable
    If this tax is to be taxed by a second tax rule, check this box. Tax rules that are subject to additional taxation must be ordered so that they appear before the additional tax rule is applied. For example: In Quebec the local tax is applied to the order total + federal tax, whereas in Ontario both taxes are calculated only on the order total. So in Quebec you would check this check box and set the Order field mentioned above to “2” since the GST is to be applied first, then the local tax. For Ontario, you will leave this check box unchecked.
 

Goods and Services Tax (GST)


Let's assume that we now want to create a new zone for the Goods and Services Tax (GST). This tax is calculated in all Canadian provinces, except for 3 (New Brunswick, Nova Scotia, Newfoundland and Labrador). So the steps will be:
  • Create a new tax zone:
    • Choose a name for this zone (e.g. Canada - GST Provinces)
    • Choose a country (Canada)
    • Choose a province (Ontario)
    • Save the zone
    • Edit the zone and now select all other provinces for which GST is used, pressing down the CTRL key on your keyboard to select them. Do not select the following provinces, since they use the Harmonized Sales Tax (HST):
      • New Brunswick
      • Nova Scotia
      • Newfoundland and Labrador
    • Save the zone again.
  • Select the new zone, enter a description (“GST”), the rate (5 for 5%), order (enter “2”), check “Apply tax to Shipping & Handling” and “This tax is taxable”.
  • Save the new tax by zone
 

Harmonized Sales Tax (HST)


We now need to account for the three provinces mentioned above that use the Harmonized Sales Tax (HST).
  • Create a new tax zone:
    • Choose a name for this zone (e.g. Canada - HST Provinces)
    • Choose a country (Canada)
    • Choose a province (Nova Scotia)
    • Save the zone
    • Edit the zone and now select the other 2 provinces for which HST is used (New Brunswick, Newfoundland and Labrador)
    • Save the zone again.
  • Select the new zone, enter a description (“HST”), the rate (13 for 13%), order (enter “1”), check “Apply tax to Shipping & Handling” and leave the other two check boxes unchecked.
  • Save the new tax by zone
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