What is Amazon's Marketplace Tax Collection?
The Canadian government requires marketplace operators (Amazon, Etsy, Shopify, eBay) to collect and remit GST/HST on behalf of their sellers. This started because too many sellers weren't registered for sales tax, and customers were buying products tax-free, which meant the government was losing revenue.
Now, if you're NOT registered for GST/HST, Amazon collects the tax on your sales and sends it directly to CRA. You never see it.
Sounds great, right? Here's the problem.
Why You Should Register Anyway
If Amazon is collecting GST/HST for you, why bother registering? Three big reasons:
1. You Can't Claim Input Tax Credits (ITCS) Without Registration
This is the biggest one. Every time you buy inventory, pay for shipping, purchase supplies, or pay Amazon fees, you're paying GST/HST on those expenses.
If you're registered, you can claim that GST/HST back as an input tax credit on your GST/HST return. If you're NOT registered, you can't claim any of it back. That 5 to 15% sales tax you paid on thousands of dollars of inventory? Gone. You just ate it.
For a seller spending $50,000/year on inventory and business expenses, that's $2,500 to $7,500 in GST/HST you're paying and can't recover. Every year.
2. You're Legally Required to Register Once You Hit $30,000
Once your worldwide taxable revenue exceeds $30,000 in four consecutive calendar quarters (or in a single quarter), you're required by law to register for GST/HST. Amazon collecting on your behalf doesn't change this obligation. CRA can still audit you and require registration retroactively.
3. It Lowers Your Cost of Goods Sold
When you claim back the GST/HST on your inventory purchases through ITCs, your effective cost of goods drops. If you're doing product costing for your Amazon business and not factoring in the GST/HST recovery, your margins look worse than they actually are.
The Critical Step: Setting Up Your Gst/hst Number in Seller Central
This is where the expensive mistakes happen. Once you're registered for GST/HST, you MUST update your Amazon Seller Central settings. Here's what to do:
Step 1: Go to Tax Settings
In Seller Central, navigate to Settings, then Tax Settings (or search for "Tax Settings" in the search bar).
Step 2: Enter Your Gst/hst Registration Number
Add your Business Number (BN) followed by your RT program identifier. It looks like: 123456789RT0001
Step 3: Verify Your Default Tax Codes
This is the step people skip, and it's where the problems start. Each of your products needs the correct tax code so Amazon knows:
- Whether to charge GST/HST on the sale
- Whether YOU are collecting the tax (because you're registered) or Amazon is collecting for you
If your tax codes are wrong, Amazon may not pass the GST/HST collected on your sales through to you. Instead, they'll send it directly to CRA. You'll file your GST/HST return showing the tax as collected, but you won't have received the money from Amazon. CRA will still want you to remit it.
I've seen sellers owe CRA five figures because of this setup error. Amazon won't retroactively give you back tax they already sent to the government on your behalf.
Step 4: Check Each ASIN
Tax codes are set at the SKU/ASIN level. If you add new products, make sure the tax codes are correct on those too. Don't assume Amazon assigns the right code automatically.
Which Tax Codes to Use
Amazon uses product tax codes (PTCs) to determine the tax treatment. The most common ones for Canadian sellers:
- A_GEN_TAX: Standard taxable product (most products)
- A_GEN_NOTAX: Tax-exempt product
- A_FOOD_NOTAX: Basic groceries (zero-rated)
- A_CLOTHING_NOTAX: Children's clothing (exempt in some provinces)
Most sellers need A_GEN_TAX on all their products. If you're selling food, children's clothing, or other exempt categories, check the specific codes carefully.
What Happens if You Don't Set It Up Correctly
Here's the scenario I see regularly:
- Seller registers for GST/HST (good)
- Doesn't update Seller Central properly (bad)
- Amazon continues collecting GST/HST as if the seller isn't registered
- Amazon sends that GST/HST directly to CRA
- Seller files their GST/HST return, reports sales with GST/HST collected
- CRA says "pay us the GST/HST on your sales"
- Seller says "but Amazon already sent it to you"
- CRA says "not our problem, your return shows you collected it, you owe it"
Fixing this after the fact involves paperwork, phone calls to both Amazon and CRA, and potentially months of back and forth. Set i