How is Shopify store income taxed in Canada?

Sole proprietor or corporation: which return your Shopify income lands on

A Shopify store is a business the moment it starts selling with intent to profit, whether or not you have registered anything. If you have not incorporated, your store's net income and expenses go on Form T2125, filed with your personal T1 return, and the profit is taxed at your personal marginal rate alongside any other income you earn.

Once you incorporate, the store's income belongs to the corporation and is reported on a T2 return, generally taxed at the small business rate on active business income up to the $500,000 business limit. You then decide separately how to pay yourself from the corporation, by salary, dividends, or a mix, which is a distinct question from how the store's profit is taxed at the corporate level; we cover that in salary or dividends from your corporation.

Revenue is recognized at the sale, not the payout

Under the accrual method most incorporated businesses use, and that many sole proprietors adopt as well, a sale is recorded as revenue on the date the order is placed and the goods or service are provided, not on the day Shopify Payments deposits the net amount into your bank account. Shopify typically holds funds for a short period before paying out, so the payout date and the sale date can fall in different reporting periods, especially right around a fiscal year-end.

Getting this date right matters most at year-end, where a batch of late-December sales paid out in early January still belongs in the earlier fiscal year's revenue. A bookkeeping system built around the Shopify order export, not the bank deposit, keeps that timing correct.

A small number of very small sole proprietors use the cash method instead, reporting income when it is actually received, but the CRA restricts who can use it and it becomes impractical once inventory and multiple sales channels are involved. Most Shopify stores are better served by accrual accounting from the start, even before incorporating, so the switch to a T2 later does not require rebuilding the bookkeeping.

GST/HST follows your customer's province, not your own

Once you are registered for GST/HST, the rate you charge on a Canadian sale depends on the province the goods are delivered to or the service is used in, not the province your business operates from. A shop based in Ontario charging 13% HST still charges 5% GST on a sale shipped to Alberta and 15% HST on one shipped to Nova Scotia. Shopify Tax and most Canadian tax apps handle this automatically once configured correctly, but the settings need to be checked, not assumed correct out of the box.

Sales to customers outside Canada, including the US, are generally zero-rated exports, meaning no GST/HST is charged but you can still claim input tax credits on your related business expenses. Registration itself is required once your worldwide taxable sales pass the $30,000 small supplier threshold over four consecutive calendar quarters.

Deducting Shopify and payment processing fees

Shopify's monthly subscription, app subscriptions, and the percentage Shopify Payments or another processor takes on each transaction are all deductible business expenses, reducing your taxable profit whether you file a T2125 or a T2. These fees typically appear on your Shopify billing statements separately from the sales themselves, and reconciling them monthly rather than at year-end keeps the numbers accurate and avoids a scramble every spring.

Shipping costs, packaging, and any fees paid to apps for reviews, email marketing, or inventory management are deductible in the same way, provided they relate to earning the store's income and are supported by receipts or statements you can produce if the CRA asks.

The cost of the products themselves is not deducted as a lump sum when purchased; it flows through cost of goods sold as the inventory is actually sold, which is a different calculation from your operating expenses and needs its own count and tracking method.

US sales tax risk once you cross state thresholds

Unlike Amazon, Shopify does not act as a marketplace facilitator that automatically collects US sales tax on your behalf; you are the seller of record on every Shopify order. Once your sales into a particular US state cross that state's economic nexus threshold, usually US$100,000 in annual sales, you generally need to register, collect, and remit sales tax there yourself. We explain the mechanics in what is US economic nexus for Canadian online sellers.

This is a separate question from GST/HST and from Canadian income tax, and it grows quietly: a store that starts with only Canadian sales can cross a state threshold within a year or two of meaningful US growth, so tracking state-by-state sales is worth setting up before it becomes urgent, not after.

How we handle Shopify bookkeeping and tax filing

We connect each client's Shopify store to their bookkeeping so sales, fees and refunds post automatically at the order date rather than the payout date, and we set up GST/HST collection correctly for the mix of Canadian, US and international customers a typical store serves. For growing stores we track US state sales alongside the Canadian filings so a threshold crossing is caught early rather than discovered a year later during a review.

We also review whether the sole proprietorship or corporation structure still fits once a store's profit grows, since the right answer often changes over the life of the business rather than staying fixed from the day it launched. Our Shopify seller accountant page covers the full Canadian and US picture for growing stores.