Selling on Etsy in Canada: taxes, HST and expenses for small makers
For Ontario makers selling jewellery, engraved gifts or stamps on Etsy, Shopify or at markets: hobby vs. business, what to claim and when HST applies.
Published
Maybe it started as a few engraved wallets for friends, a jewellery table at a weekend market, or custom stamps for a wedding. Now there's a steady trickle of orders on Etsy or a Shopify store, and the money lands in the same account you pay rent from.
At that point you're very likely running a business in the CRA's eyes. This guide covers what that means for Ontario makers: what to report, what you can claim and when HST kicks in.
Hobby or business?
The CRA treats selling as a business when you do it regularly, with the aim of making a profit. Signals include listing products continuously, buying materials in bulk, advertising, and running a shop on Etsy or Shopify. A one-off sale of something you made for yourself is usually not a business.
If it's a business, you report it on Form T2125 with your personal return. The good news is that business status is also what lets you deduct your costs.
What makers can claim
| Expense | Examples | Where it goes |
|---|---|---|
| Materials | Silver wire, gemstones, leather, wood blanks, rubber, ink | Cost of goods sold |
| Packaging | Boxes, pouches, tissue, labels, thank-you cards | Cost of goods sold |
| Marketplace fees | Etsy listing, transaction and payment processing fees; Shopify plan and app fees | Fees |
| Shipping | Canada Post labels, padded mailers, shipping insurance | Delivery and freight |
| Advertising | Etsy Ads, Instagram promotion, business cards | Advertising |
| Market costs | Craft fair booth fees, table cloths, card reader | Rent and supplies |
| Small tools | Pliers, punches, stamps, cutting mats | Supplies |
| Big equipment | Laser engraver, kiln, Cricut, 3D printer | Capital cost allowance (CCA) |
| Workspace | A share of rent, utilities and internet for a dedicated space at home | Business-use-of-home |
Bigger equipment like a laser engraver usually can't be deducted all at once. It's depreciated through capital cost allowance (CCA) over several years. Etsy's fees come off before your payout, so make sure you report gross sales and claim the fees separately rather than reporting only what reached your bank.
Inventory: materials you haven't sold yet
If you buy $800 of sterling silver in November and only turn $300 of it into sold rings by December 31, you can't deduct the full $800 this year. The unsold $500 is closing inventory and gets deducted when those pieces sell. Count what you have on hand at year end. A rough, honest count is far better than none.
HST for Etsy and Shopify sellers
You don't have to register for HST until your worldwide taxable sales pass $30,000 over four consecutive calendar quarters. Below that you're a small supplier.
While you're unregistered, Etsy collects and remits GST/HST on your sales to Canadian buyers as the marketplace operator. Your own Shopify store and market table work differently: there's no marketplace in between, so once you register, you charge 13% HST in Ontario yourself.
Registering early can be worth it if you spend a lot on equipment and materials, because you can then claim input tax credits for the HST you paid. Either way, read how much to set aside for taxes before the money is spent.
Etsy also reports seller information to the CRA once you pass its reporting threshold, so the sales you report should match your Etsy and Shopify payout reports.
The records that hold up
- Order and payout reports exported from Etsy and Shopify at year end
- Receipts for materials, especially bulk orders from suppliers
- A year-end inventory count
- Your Canada Post shipping history
- Notes on any split costs, like the share of your phone or home used for the shop
Keep the shop's money visible
The hardest part for small makers isn't the tax form. It's that a $14 order of jump rings, a $9 shipping label and a $60 dinner all sit on the same credit card. You can't tell whether the shop is actually profitable, and spending creeps up because the shop's money and yours look the same.
Sedir connects the cards you already use, sorts business purchases like supplier orders and shipping labels from personal ones, and shows the shop's profit and your personal budget side by side. No second bank account required.
General information for Ontario residents, not tax or legal advice. Check with the CRA or an accountant for your situation.
