Dropshipping Canada Tax and Setup Guide 2025

How to set up a compliant dropshipping business in Canada, handle GST/HST, report income, and manage CRA obligations.

How Dropshipping Works in Canada

Dropshipping is a business model where you sell products online without holding inventory. When a customer orders from your store, you purchase the item from a third-party supplier who ships directly to the customer. Your profit is the margin between what the customer pays you and what you pay the supplier. Canadian dropshippers typically use platforms like Shopify, WooCommerce, or Amazon FBA, sourcing from suppliers on AliExpress, Oberlo (now DSers), or domestic Canadian wholesalers.

From the CRA's perspective, dropshipping income is business income, reported on Form T2125. Your taxable income is your gross revenue minus cost of goods sold, Shopify/platform fees, advertising spend, and other allowable business expenses.

GST/HST for Canadian Dropshippers

GST/HST rules for dropshipping depend on who your customers are and where your supplier is located. If you sell to Canadian customers, once your revenue exceeds $30,000 you must register for GST/HST and charge it on sales to Canadian buyers. If you sell exclusively to international (non-Canadian) customers, those sales are generally zero-rated for GST/HST purposes.

Dropshipping from a foreign supplier (e.g., China) to a Canadian customer involves import duties and taxes paid by the customer (if the package clears customs) or embedded in your pricing. You do not charge GST/HST on the supplier's invoice — GST/HST applies to your sale price to the Canadian end customer.

Key Expenses You Can Deduct

Expense	Deductible	Notes
Cost of goods (supplier cost)	100%	Your largest deduction
Shopify / platform subscription	100%	Monthly fee is fully deductible
Payment processing fees (Stripe/PayPal)	100%	2.9%+ per transaction
Facebook/Google/TikTok Ads	100%	Your marketing spend
Domain and hosting	100%	Annual costs for your store
Apps and software (DSers, etc.)	100%	Monthly app subscriptions
Product sampling	100%	Testing products before selling
Home office	Business %	Workspace used for your store
Virtual assistant / freelancers	100%	Paid help for store management
Accounting software	100%	QuickBooks, Wave, FreshBooks

Registering Your Dropshipping Business

Most Canadian dropshippers operate as sole proprietors, which requires no formal incorporation. If your business name is different from your legal name, you need to register a business name (DBA) with your provincial registry — typically $60–$80. Sole proprietors report business income on their personal T1 return. No separate corporate tax return is required.

If your dropshipping business grows significantly (net income above $80,000–$100,000), incorporation may offer tax advantages through the small business deduction rate of 9% on the first $500,000 of active business income — compared to personal marginal rates of 40–53% at higher income levels.

Currency Exchange and Foreign Income

Many Canadian dropshippers earn revenue in USD (selling to American customers) or other currencies. All foreign income must be converted to Canadian dollars for tax purposes using the Bank of Canada exchange rate on the transaction date. Similarly, costs paid in USD to foreign suppliers are converted at the exchange rate when paid. Keep detailed records of exchange rates used.

Avoiding Common CRA Issues for Dropshippers

• Report all income — platform data is increasingly shared with the CRA under digital economy reporting rules
• Do not net revenues against costs before reporting; always report gross revenue and deduct costs separately on T2125
• Keep receipts for all advertising and supplier invoices for at least 6 years
• If using a foreign payment processor (Stripe, PayPal), ensure you can document all transactions
• Register for GST/HST promptly when you cross $30,000 — penalties for late registration apply