Sales Tax for a Canadian Digital Studio

A studio that bills design work and also sells downloadable documents is running two businesses from a tax perspective, even though they share a bank account.

Track the two streams separately in your accounting from day one. You will need the split for the 90%-services test, for sales tax reporting, and for any future conversation about selling the product side of the business independently.

GST/HST applies to almost everything a design studio sells in Canada. The question is not whether your supplies are taxable — they are — but whether you are required to be registered to collect.

The small supplier threshold

• CAD 30,000 in worldwide taxable revenue, measured over four consecutive calendar quarters or in any single calendar quarter.
• Worldwide means worldwide. Zero-rated export sales count toward it, because they are taxable supplies at 0%, not exempt supplies.
• Cross it in a single quarter and you cease to be a small supplier immediately, with registration required within 29 days of that sale.
• Cross it over four quarters and you have one further month of small supplier status before registration is required.
• The threshold has not moved since 1991 — it is far easier to cross than it sounds.

For digital products and most services delivered electronically, the place of supply follows the customer’s location — you charge the rate of the customer’s province, not yours.

GST/HST registration does not cover BC PST, Saskatchewan PST, Manitoba RST, or Quebec QST. Each is a separate provincial registration with its own rules, and software and digital products are specifically within scope in several of them.

• British Columbia — PST applies to software and telecommunication services. A BC-based seller registers from the start; out-of-province Canadian sellers register once BC-sourced revenue passes the provincial threshold.
• Saskatchewan — has been aggressive in applying PST to digital products and services supplied into the province, with a low tolerance for unregistered remote sellers.
• Quebec — QST is administered by Revenu Québec, separately from the CRA. A Quebec-resident business registers for both GST and QST at the same time.
• Manitoba — RST applies to specified digital and streaming services; check current scope before assuming you are out.

If your registered office is in Ontario or a Maritime province, HST covers you for domestic sales and this layer only becomes relevant as sales into BC, Saskatchewan, Manitoba, and Quebec grow. If you are based in BC or Quebec, you are dealing with two registrations from day one.

Supplies of services and intangible property to non-residents who are outside Canada are generally zero-rated. You charge 0% GST/HST, and — critically — you still claim full input tax credits on the costs of producing them.

Keep evidence of the customer’s non-residence and of where the supply is consumed: the contract, the billing address, the correspondence. The zero-rating is yours to substantiate on audit.

Since South Dakota v. Wayfair, physical presence is irrelevant. US states assert sales tax obligations on remote sellers based purely on economic activity in the state — and a Canadian corporation with no US presence is squarely within reach.

What actually applies to you

• Custom design services billed to US businesses are rarely subject to state sales tax — most states do not tax professional services.
• Downloadable templates and digital documents sold to US consumers are where the exposure sits, and it only materialises at scale.
• US federal income tax is a separate question. A Canadian corporation without a US permanent establishment is protected by the Canada–US tax treaty — but give each US client a Form W-8BEN-E claiming treaty benefits, or expect 30% to be withheld by default.

This is the strictest regime you will encounter, and the one most likely to be ignored by a small Canadian seller until it becomes a problem.

The non-Union OSS scheme

Rather than registering in every member state, a non-EU seller registers for the non-Union One Stop Shop in a single EU country of their choosing, files one periodic return covering all EU sales, and pays once — the tax authority distributes the VAT to the member states. It is the only sane route for a small seller who wants to handle this directly.

B2B sales to VAT-registered EU businesses are different: the reverse charge applies, the customer accounts for the VAT, and you charge nothing — provided you validate and record their VAT number.

For the digital-documents side of the business specifically, there is a structural alternative worth serious consideration before you build a Stripe checkout.

A merchant of record platform sells the product to the end customer as principal, then remits the proceeds to you. Because it is the legal seller, it carries the sales tax and VAT obligations worldwide — EU VAT, UK VAT, US state sales tax, all of it. You receive a single payout stream and file none of those returns.

• Keep customer location evidence for every digital sale — billing address, IP country, and payment method country.
• Keep contracts and correspondence proving non-residence for every zero-rated export.
• Separate services revenue from digital product revenue in your chart of accounts from the first transaction.
• Reconcile your payment processor reports to your sales tax returns every period — the mismatch is what audits find.