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Keeping track of changes and developments in GST/HST, Quebec sales tax and other provincial sales taxes across Canada, can be a full-time job. The consequences for failing to adequately manage your organization’s sales tax obligations can be significant - from assessments, to forgone recoveries and cash flow implications, to customer or reputational risk.
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E-commerce can be a great option to grow your business if you’re looking to bring your product to a new customer base or audience, differentiate your business or enter new markets. It can work as a stand-alone selling option, in a blended approach or as an addition to your current business—but it’s important to first determine the right set up and to understand the necessary time commitment and resources. It’s not always a straight line to success – so be prepared to adjust along the way.
Contents
How do I set up an e-commerce system?
Consider these infrastructure, logistics and technology factors when setting up an e-commerce system:
Assess your business objectives and the markets in which you want to sell. If you’re entering into a new online market, consider whether this expansion supports your business strategy, and whether your business has the capabilities to reach its new objectives.
Consider your operational capabilities and logistics. Is your current warehouse or storage facility ready for increased output? Is it in the optimal location to reach your chosen markets?
Evaluate your workforce. In order to handle the additional fulfillment, shipping and returns workload, you may need to hire more employees or train existing staff to manage new processes for online sales.
Review your pricing strategy. Factor in the cost of overhead, shipping to different jurisdictions and returns. You will also need to decide how much of this cost you absorb and how much you pass onto your customers. Determine what website and payment platform your business will use. User experience is an important factor for successful e-commerce performance, and so is the reliability of the system you intend to use. The system should be easy to navigate and powerful enough to handle complexities like sales taxes in different jurisdictions. If you’re unsure where to start, there are many third-party companies that can support you as you assess the right platform for your business.
Think about the different ways your company can promote its products online. You should regularly revisit and adapt your marketing strategy—especially once you have data on how your products are performing in different markets. Set and track key performance indicators that are relevant to e-commerce, including your overall conversion rate and conversion rate by channel.
Leverage customer and sales data you have collected once you are live. This information can help you understand your customer base and make appropriate strategy decisions based on real-time market information.
How does taxation influence my e-commerce strategy?
Selling online to another province or country will have tax implications that require preparation before you begin. Consider these questions when determining the applicable tax rate that will apply to your product or service:
What are you selling? Products, services and intangibles are taxed at different rates in various jurisdictions, according to specific rules.
Who are you selling to? Are you selling directly to consumers, businesses, or non-residents of Canada? There may be different rates and registration requirements.
Where are you selling? Within Canada, provinces have different provincial sales tax rules. Familiarize yourself with which provinces have a harmonized sales tax versus a federal and provincial sales tax—and the registration requirements for each. When selling into the United States, you may need to consider the applicable income and sales taxes due. At the state level, different corporate income tax rules apply, and your business may be subject to income tax even if it’s exempt federally. You might need to collect and remit state sales tax if your business meets certain threshold requirements. Foreign income taxes paid may be available as a foreign tax credit, offsetting income taxes payable in Canada.
When it comes to tax, there are a few other considerations:
Be aware of changing tax rules. Tax rules are always changing – meaning you need to be aware of new rules and adapt. One area to follow closely right now is the treatment of digital goods and services, such as software, which is evolving in many Canadian and international jurisdictions.
Keep accurate records. You will need to track where your customers are located so that you can charge and remit the proper taxes – and demonstrate this in the event of any audits that might occur in the future.
Don’t assume your payment platform has all the right settings off the shelf. Not all payment platforms are powerful enough to track revenue by province or state, and track customer location. Consult with your advisor before you begin selling online to determine what income or sales tax considerations should be reflected in your sales platform or other processes.
What are the risks of e-commerce?
Any user of an online platform should be aware of digital risk and cyber threats, including compromised systems, data leaks and reputational damage. Consider these best practices to help reduce cyber risk and keep your data and systems secure:
Train – and test – staff on cybersecurity awareness
Conduct annual cybersecurity assessments
Establish password policies, system patching policies, and policies on the acceptable use of the company network
The information contained herein is intended for general informational purposes only and does not constitute as advice or opinions to be relied upon in relation to any particular circumstance. For more information about this topic, please contact your Grant Thornton advisor. If you do not have an advisor, please contact us. We are happy to help.
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