Etsy Seller Tax Guide Canada 2025

How Canadian Etsy sellers report income, claim deductions, handle GST/HST, and satisfy the CRA's business vs. hobby rules.

Is Your Etsy Shop a Business or a Hobby?

This is the foundational question for Canadian Etsy sellers at tax time. The CRA distinguishes between a business (where losses are deductible against other income and income must be reported) and a hobby (where losses are not deductible but income technically still should be reported). The key test is "reasonable expectation of profit" — do you operate with the intent and reasonable chance of making money?

If you run your Etsy shop with a business mindset — setting prices to cover costs and generate profit, marketing actively, tracking revenue and expenses, reinvesting in the shop — the CRA will treat it as a business. This is generally advantageous: you can deduct losses in losing years and deduct all eligible business expenses.

Reporting Etsy Income on Your T1

Etsy does not issue a T4A to Canadian sellers. However, you are still fully required to report all Etsy income on your T1 personal return using Form T2125. Report your gross sales revenue (before Etsy fees, before cost of materials) as business income. Then deduct all eligible expenses to arrive at your net business income. Etsy provides a monthly and annual statement in your seller dashboard — download and save these for your records.

Be meticulous about what you report as gross revenue: include all sales, including shipping amounts if you charge for shipping separately on Etsy. Your deductions will include the Etsy fees, actual shipping costs, and materials.

Deductible Expenses for Etsy Sellers

Expense	Deductible	Examples
Cost of materials/supplies	100%	Fabric, yarn, resin, wood, paint
Shipping costs paid	100%	Canada Post, Purolator, UPS
Packaging materials	100%	Boxes, tissue paper, labels, tape
Etsy listing and transaction fees	100%	Per-listing fees, 6.5% transaction fee
Etsy Ads / promoted listings	100%	Offsite ads, onsite advertising
Photography equipment	100%	Camera, ring light, backdrop
Tools and equipment	100% or CCA	Sewing machine, cutting machine, kiln
Home office (workspace)	Business %	Studio space in home
Software subscriptions	100%	Canva, editing software, inventory apps
Courses and training	100%	Craft skills related to your products
Market/craft fair fees	100%	Booth fees for in-person sales

Inventory Tracking for Etsy Sellers

If you maintain an inventory of finished goods or raw materials, the CRA requires you to track opening inventory, purchases during the year, and closing inventory. The formula for Cost of Goods Sold (COGS) is: Opening Inventory + Purchases - Closing Inventory = COGS. This amount is deducted on your T2125 as a cost of goods sold, separate from other business expenses.

Small Etsy sellers who make-to-order and rarely hold significant inventory can simplify this by deducting material costs as purchased rather than tracking inventory. Consult a tax professional if your inventory value is significant at year-end.

GST/HST for Etsy Sellers

Etsy sellers selling to Canadian customers may be required to collect and remit GST/HST once they exceed the $30,000 annual threshold. Additionally, Etsy itself collects and remits GST/HST on behalf of sellers for sales to Canadian customers in some provinces — check your Etsy Tax Settings to understand what Etsy is remitting versus what you are responsible for.

Once you register for GST/HST, you add 5–15% to Canadian sales (depending on the buyer's province), remit collected amounts quarterly or annually, and claim Input Tax Credits on GST/HST paid for materials, supplies, and other business expenses.

Selling Internationally: Currency and Tax Considerations

Most Etsy sellers earn USD from American buyers. Foreign currency amounts must be converted to Canadian dollars for tax reporting using the Bank of Canada exchange rate on the transaction date (or an acceptable average rate for the year). Etsy's annual statement shows totals in USD — convert each month's revenue at that month's average exchange rate for accuracy.