Running an Etsy shop in Canada means more than crafting great products and writing compelling listings. Once you start earning money, you have tax obligations to the CRA. Whether you run a part-time Etsy side hustle or a full-time handmade business, understanding how your income is taxed, what you can deduct, and when you need to collect HST/GST is essential. This guide covers everything Canadian Etsy sellers need to know.
All income from your Etsy shop is reported as business income on Form T2125 (Statement of Business or Professional Activities), which you attach to your T1 personal income tax return. Your gross income is the total amount received from buyers before Etsy takes its fees. You then deduct your business expenses — including Etsy fees — to arrive at net business income, which is the taxable amount.
Download your Etsy Shop Stats and Payment Account CSV files at year-end to reconcile your income. Etsy also provides a Monthly Payment Account Statement showing all transactions. Keep these records for at least six years as the CRA can audit up to three years back (or longer if fraud is suspected).
Etsy charges several fees that are all deductible as business expenses:
For product sellers (which most Etsy sellers are), Cost of Goods Sold is one of your largest deductions. COGS includes all materials and supplies used to create your products: yarn, fabric, beads, resin, wood, paint, packaging materials, shipping supplies, and any other materials that become part of or are consumed in making your products.
Track COGS meticulously by keeping all supply receipts. If you maintain inventory, you must track opening inventory + purchases - closing inventory = cost of goods sold. Accurate COGS tracking often significantly reduces your taxable income.
Once your total Etsy revenues (plus any other business income) exceed $30,000 in any 12-month period, you must register for GST/HST. After registering, you must charge GST/HST on sales to Canadian buyers. The rates are: 5% GST (Alberta, BC, Saskatchewan, Manitoba, territories), 13% HST (Ontario), 15% HST (Nova Scotia, New Brunswick, Newfoundland, PEI).
Etsy Payments automatically collects and remits the correct GST/HST to the CRA on your behalf for sales to Canadian buyers through the platform (as of 2022). However, you may still need to track this separately depending on how you file your HST return. Sales to buyers outside Canada (US buyers, EU buyers) are generally zero-rated — you don't charge them Canadian HST.
If your Etsy shop earns in USD, you must convert to Canadian dollars for tax purposes using the Bank of Canada exchange rate on each transaction date (or the annual average rate for regular recurring income). Etsy provides transaction records, and your bank statements will show the CAD amounts received after conversion.
Keep track of the exchange rate impact — if the Canadian dollar weakens during the year, your CAD income from USD sales will be higher than expected. Conversely, if it strengthens, your income in CAD terms may be lower.
Several strategies help Etsy sellers manage their tax burden:
Keep all receipts for materials and supplies — both physical and digital. Screenshot or download digital receipts immediately, as online stores often purge order history. Maintain a simple spreadsheet tracking all income and expenses by category. Many Etsy sellers use Wave (free) or QuickBooks (paid) to automate bookkeeping through bank feeds.
When you're self-employed, every fee matters. KOHO offers a free account with no monthly fees and no minimum balance. Use code 45ET55JSYA to get a bonus.
Open KOHO Free — No Fees — Code 45ET55JSYA