Etsy seller tax services: your T2125, the $30,000 GST question, and a calmer year-end

Your T2125 starts with gross sales, not Etsy deposits

Most makers report as sole proprietors on a T2125, filed inside the personal return — due June 15 for the self-employed, with any balance owing still due April 30. The single most common error we fix is revenue: Etsy deposits arrive net of transaction fees, payment processing, listing fees, and Offsite Ads charges, so reporting deposits understates both income and expenses at once. We rebuild the year from Etsy's CSV downloads and monthly statements: gross sales on the revenue line, every fee category deducted separately below it.

Doing it properly matters beyond correctness. Your net self-employment income drives CPP contributions, RRSP room, and — if you cross the threshold below — GST/HST exposure. A return built on deposits gets all three wrong in ways that compound year over year. Shipping charged to buyers is revenue too, with postage deducted separately — another line the deposit figure silently nets away.

The $30,000 question: when to register for GST/HST

You must register once taxable sales exceed $30,000 over four consecutive calendar quarters — a rolling test, not a calendar-year one, which is exactly how a strong Q4 catches makers off guard the following spring. Below the line, registration is a choice, and the right answer depends on your customer map.

• Mostly US and overseas buyers? Those orders are zero-rated exports — you charge 0% but recover GST/HST paid on materials, tools, shipping, and fees. Voluntary registration often puts money in your pocket.
• Mostly Canadian buyers? Registration means charging tax at each buyer's provincial rate, which either raises your prices or comes out of your margin. Waiting until the test forces the issue is often rational.
• Already registered? Give Etsy your GST/HST number so the platform's collection settings match your status, and remit through your own returns.

We run the arithmetic both ways before you decide — the ITCs recovered versus the pricing hit — because unwinding a registration is far messier than making it deliberately.

The studio and the shelf: expenses CRA actually checks

Two deductions carry most of a maker's return, and both need method. The first is business-use-of-home: a studio corner, spare room, or garage bench deducted by reasonable proportion — usually square footage — covering rent or mortgage interest, utilities, insurance, and property tax. Home expenses cannot create a business loss, but the unused portion carries forward, so claiming it is never wasted.

The second is materials inventory at December 31. Beads, sterling wire, fabric, glazes — whatever you hold at year-end is not yet a deduction. Cost of goods sold equals opening inventory plus purchases minus closing inventory, so expensing every supply run as it happens overstates COGS and invites reassessment. We help you set up a year-end count that takes an evening, not a week: raw materials at cost, works in progress at materials cost, finished pieces at what they cost to make — never at your listing price. Durable tools are different again: a kiln, laser cutter, or sewing machine is depreciated through capital cost allowance rather than deducted the year you buy it.

Quarterly or annual GST/HST filing, once you are in

Registered makers default to annual filing, but the schedule is a choice worth making consciously. Annual filers whose net tax reaches $3,000 must also pay quarterly instalments — so the simplicity is partly an illusion once you grow.

For a maker whose US sales dominate, quarterly elections convert a once-a-year refund into quarterly cash flow that buys materials all year. For a shop selling mostly within Canada, annual filing with a set-aside account is usually the calmer answer. One more note for US-heavy shops: Etsy handles American state sales tax as a marketplace facilitator, but US income tax questions — and what happens if you start doing craft fairs stateside — belong on our cross-border accounting for Etsy sellers page.

Source: CRA — GST/HST for businesses.