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HST and Selling Digital Goods Online

I’m preparing to sell my e-book on Sublime Text very soon. Part of that is building the online checkout module.

I was hoping to just use a simple solution where I only needed to ask buyers for a credit card and their email address. Since it’s an online download / virutal product, I didn’t think I needed to collect addresses from users.

So, as I’m setting this up, I was wondering about HST. With regular goods and services, you charge Canadians the destination HST/GST rate. I bill Ontario customers 13% HST, Alberta Customers 5% GST and out-of-country customers 0%. But how does this work when you are selling something online and planning not to collect addresses? Whoever buys the e-book might be from Ontario, they might be from somewhere else in Canada or they might be from outside the country.

So, I called up the CRA and asked them what to do in this situation. Lucky for me I was able to get a tech-savvy person on the other end that was extremely competent in his job. Because the good will be usable in Canada (Canadian can read the book), I will need to follow regular HST charging practices. So, I would need to collect the home address of every single person who buys my book. Arg.

So my next question was:

Can I just ask them if they live in Canada or not?

No. Asking someone isn’t enough proof of where they live. It won’t hold up in an audit.

Well, then..

Can I use IP address detection to see if they live in Canada or not?

No, because users can spoof an IP. Still not good enough…

So what are my other options if I don’t want to collect addresses?

If I really don’t want to collect billing information from everyone who buys the book, I would have to charge Canada’s highest possible tax rate to every single customer, regardless of if they live in Canada or not. This is the 15% tax rate of Nova Scotia.

Better safe than sorry

So, it looks like I’ll have to collect the addresses and charge the customer’s provinces HST/GST rate. Out of country customers will pay nothing in taxes.

Not the solution I wanted to hear, but I’m glad to find this out now rather than down the road.

Hope this answers a few questions!

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3 Responses to HST and Selling Digital Goods Online

  1. Andrew says:

    Billing address seems tedious but required to minimize the amount of fees you would owe the credit card companies. CC companies charge on a sliding scale.

    You could also just collect the phone number and zip/postal code, technically these would match up based on standards of practice for cellular networks and residency.

  2. I sold a domain name this year to a Canadian client and charged 13%. I was not aware about the location of the buyer but when saw Ontario’s address, send him a GST/HST invoice. I totally agree its better to be safe than sorry.

  3. Marc says:

    Maybe you can use Gumroad.com – they are charging your customers and pass on the money later on. So, you’ll have always Gumroad.com as a ‘customer’ you can invoice.

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