Bookkeeping for Canadian E-Commerce Businesses
- Targeted Accounting
- Bookkeeping
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Table of Contents
Why E-Commerce Books Go Wrong
An online store generates more transactions in a month than a service business does in a year, and almost none of them arrive in your bank account looking like what they were.
A customer pays $113 including tax. The platform deducts a processing fee. A refund from last week nets off. The payout lands three days later as $1,847.23 covering forty orders. Recorded as a single revenue line — which is what happens by default — your books show $1,847 of revenue instead of roughly $2,000 in sales, $130 in fees, $90 in refunds and the tax you now owe.
Everything downstream is then wrong: gross margin, sales tax owing, and any decision based on either.
Key Takeaways
- Sales tax follows where the customer receives the goods — an Ontario store shipping to Alberta charges 5%, not 13%.
- Platform deposits arrive net of fees, refunds and chargebacks. Recording the deposit as revenue understates both sales and expenses.
- LIFO is not permitted in Canada. Use FIFO or weighted average, and apply it consistently.
- Marketplace facilitator rules mean some platforms collect tax on your behalf — but not all, and not on everything.
- Inventory sitting in a Canadian fulfilment warehouse has tax consequences that catch out non-resident sellers.
Sales Tax Across Provinces
For goods shipped within Canada, the place of supply is generally where the goods are delivered. Selling nationally means charging the destination province’s rate on every order — 5% to Alberta, 13% to Ontario, 14% to Nova Scotia, 15% to New Brunswick. The full rate table and registration rules are in our GST/HST guide for Canadian small business.
Your platform can do this correctly if configured correctly, and this is worth a proper setup session rather than a guess — our guide to accounting software for Canadian businesses covers how sales tax codes should be configured. Confirm that every province has a tax code, that the rates are current, and that shipping charges are taxed at the same rate as the goods, which is the setting most often missed.
The separate provincial taxes are the harder layer. Selling into BC, Saskatchewan, Manitoba or Quebec can create an obligation to register and file with that province directly, depending on your level of activity there and what you sell. Those registrations are independent of your GST/HST number, and a business can be perfectly compliant federally while quietly accruing a provincial liability.
What Platforms Actually Do
Shopify is a storefront, not an agent. It will calculate and collect tax based on how you configure it, but it does not register for you, does not remit, and does not file. The obligation is entirely yours. Businesses that assume otherwise discover it at their first return.
Marketplaces — Amazon, Etsy, eBay and similar — can be treated as distribution platform operators under Canada’s digital economy rules, required to collect and remit tax on certain sales made through them. Where that applies, you must not also collect on the same sale, and you need to identify those sales separately in your records so your return reconciles.
The practical consequence is that a seller on both Shopify and Amazon has two different tax treatments running simultaneously, and needs their bookkeeping to distinguish them. Blending the channels into one revenue account makes the return impossible to support.
Reconciling Payouts
The discipline is simple to state: record gross sales, then record each deduction separately. One payout of $1,847.23 becomes gross sales, sales tax collected, platform fees, payment processing fees, refunds and chargebacks — with the net agreeing to the bank.
Doing this by hand at volume is impractical, which is why a sync tool between the platform and the ledger is close to mandatory above modest volumes. Whatever tool you use, reconcile the platform’s own settlement report to your books monthly. The point is not to catch fraud; it’s to catch configuration drift, which happens silently whenever a platform updates a fee structure or you add a channel.
Chargebacks deserve their own account rather than being buried in refunds. A rising chargeback rate is an operational signal, and it is invisible if it’s netted against sales.
Inventory Costing
Inventory is an asset until sold, at which point its cost moves to cost of goods sold. This is the accrual principle explained in small business accounting basics. Treating purchases as an immediate expense — the most common e-commerce bookkeeping error — makes a stock-building month look catastrophic and a stock-depleting month look excellent.
Canada permits FIFO and weighted average cost. LIFO is not acceptable for Canadian tax purposes. Choose one method and stay with it; changing requires justification and consistent restatement.
Landed cost is where margins are actually determined. The cost of a unit isn’t the supplier’s price — it includes freight, duty, customs brokerage, and any non-recoverable taxes. Sellers who cost at supplier price routinely believe their margin is eight to twelve points better than it is, and price accordingly.
Count physical inventory at least annually, at year end. The difference between your system quantity and the real one is shrinkage, and it needs recording rather than explaining away.
Amazon FBA
Fulfilment by Amazon adds two wrinkles. Your inventory sits in warehouses you don’t control, sometimes in provinces you have no other connection to, and the settlement reports are among the more complex to reconcile — with fees in several categories, reserves, and reimbursements that arrive without obvious reference.
For Canadian resident sellers the main discipline is simply reconciling settlements properly and tracking inventory by location. For non-resident sellers holding stock in Canadian warehouses, the position is more involved and can create Canadian registration and filing obligations; that situation needs specific advice rather than a general guide.
Numbers That Matter
Beyond the standard set, e-commerce has its own:
- Contribution margin per order — price less landed cost, platform fees, processing and shipping. The figure that says whether growth helps.
- Inventory turns — cost of goods sold ÷ average inventory. Low turns mean cash sitting on shelves.
- Return rate by SKU — a product with a 20% return rate is usually unprofitable regardless of its margin.
- Cash conversion cycle — days from paying a supplier to collecting from a customer. The reason growing stores run out of money.
Selling Across the Border
Most Canadian online sellers reach US customers eventually, and the tax position changes in two directions at once.
On the Canadian side, exports of goods to customers outside Canada are generally zero-rated. You charge no GST/HST, but you continue to claim input tax credits on related costs — inventory, packaging, advertising, platform fees. Sellers with a substantial export share are often in a permanent refund position, which is a strong argument for filing monthly rather than annually and getting that money back promptly instead of lending it to the CRA for a year.
On the US side, the question is sales tax nexus. Following the 2018 Wayfair decision, US states may require out-of-state sellers to register and collect sales tax once they exceed a threshold of sales or transactions into that state. Thresholds, rules and marketplace-facilitator treatment differ by state, and there are more than forty separate regimes. The Streamlined Sales Tax Governing Board publishes each state’s thresholds.
For most small Canadian sellers this is manageable: marketplace platforms handle collection for sales made through them in most states, and direct sales through your own storefront only create obligations once you cross a state’s threshold. But it is a real obligation, not a theoretical one, and it is tracked by sales volume you may not be monitoring by state. If US direct sales are becoming material, get the nexus position reviewed rather than assuming Canadian residence protects you.
Separately, US federal income tax is a different question from sales tax, and generally turns on whether you have a permanent establishment there. The Canada–US tax treaty offers meaningful protection, but holding inventory in a US warehouse can complicate the analysis.
Customs, duty and landed cost
Importing inventory brings duty, brokerage fees and GST collected at the border. The GST paid on import is recoverable as an input tax credit provided you have the customs documentation — and that documentation is separate from your supplier’s invoice, which is why import GST is one of the most commonly unclaimed credits among e-commerce sellers.
Duty, by contrast, is not recoverable. It is part of the landed cost of the goods and belongs in inventory valuation. Sellers who expense duty separately understate their cost of goods and overstate their margin, then price accordingly.
Foreign currency adds a final layer. Purchases in US dollars must be recorded in Canadian dollars at an appropriate rate — the Bank of Canada daily rate is the usual reference — and the difference between the rate at purchase and the rate at payment is a foreign exchange gain or loss — a real item that belongs in your books rather than being absorbed silently into cost of goods.
Reconciling Shopify and Stripe by Hand?
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