Invoicing and Tax regulation in Canada
Navigating Canada’s evolving e-invoicing and tax regulations can be challenging. That’s why this guide provides an overview of the latest requirements to help you stay compliant and avoid potential penalties.
In the guide, we will cover:
Regulations Timeline
A quick overview of all current and upcoming regulations that Canada mandates regarding e-invoicing and digital reporting. For more details, check out the sections below.
Regulations in effect:
Upcoming changes to Canadian e-invoicing:
Canadian E-invoicing Requirements (2024 Updated)
In Canada, it is mandatory for all federal government departments and agencies to receive e-invoices.
While B2C and B2B e-invoicing remains optional, many Canadian businesses have already proactively adopted this technology. The benefits of e-invoicing include improved operational efficiency, faster payment processing, better compliance with tax regulations, and significant cost savings, making it a better choice than traditional paper invoices.
Though e-invoicing is not yet mandatory, it is highly encouraged. To support this transition, Canada has implemented:
Governmental Body Responsible for E-invoicing
The Canadian Revenue Agency (CRA) is responsible for e-invoicing regulations.
Click here to visit their official website.
With the support of Public Services and Procurement Canada (PSPC), significant progress is being made in implementing e-invoicing within government procurement processes.
Click here to visit their official website.
E-invoicing Formats
In Canada, e-invoices are exchanged using the XML format. The most common are Universal Business Language (UBL) and, PEPPOL BIS Billing 3.0. However, there is no central hub or platform. Instead, businesses use e-invoicing networks like PEPPOL and reliable access point providers such as Space Invoices to ensure compliance.
E-invoice Requirements
Invoices are required whenever goods or services are sold, encompassing transactions with both businesses and consumers. Businesses registered for the GST/HST must issue invoices within a timeframe typically dictated by the business's invoicing schedule or upon the customer's request. They can be issued in either electronic or paper form and must comply with EU standards, including the following components:
Certain transactions may require additional information:
E-invoice Archiving
E-invoices must be archived for a minimum of six years.
Tax Regulations
Goods and Services Tax (GST)
GST is a federal tax applied at a standard rate of 5% across Canada on most goods and services. In many provinces, the GST is combined with a Provincial Sales Tax (PST). However, Alberta, the Northwest Territories, Nunavut, and Yukon do not impose PST and apply only the GST at 5%.
Provincial Sales Tax (PST)
PST rate can vary, leading to a more localized approach to sales taxation. This variation results in distinct tax implications for businesses operating across different provinces. For example, PST is applied at a rate of 7% in British Columbia and Manitoba, and 6% in Saskatchewan. Quebec represents a unique case where the PST is known as the Quebec Sales Tax (QST) and is charged at a rate of 9.975%. The QST is closely harmonized with the federal GST system but functions similarly to other provinces' PST.
Harmonized Sales Tax (HST)
HST combines GST with the PST into a single tax. It is levied at a rate of 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island, and at 13% in Ontario.
Federal Corporate Tax
The basic federal corporate tax rate is set at 38% of taxable income, however federal tax abatement provides a 10% reduction of the basic rate, lowering it to 28% for income earned within any province. There is also a general tax reduction which decreases the rate to 15% on general corporate income;
Small business have their own rate offering a reduced tax rate of 9% on the first $500,000 of active business income, thanks to the small business deduction.
Provincial and Territorial Corporate Tax
The combined federal and provincial/territorial corporate tax rate typically ranges from 25% to 31%, varying by province or territory.
Here is a comprehensive list of the rates:
| Province | Lower rate | Normal rate |
| Alberta | 2% (The income eligible for the lower rate is determined using the British Columbia business limit of $500,000) | 8% |
| British Columbia | 2% (The income eligible for the lower rate is determined using the British Columbia business limit of $500,000) | 12% |
| Manitoba | 0% (The income eligible for the lower rate is determined using the Manitoba business limit of $500,000) | 12% |
| New Brunswick | 2.5% (To determine the income eligible for the lower rate, use the New Brunswick business limit of $500,000) | 14% |
| Newfoundland and Labrador | 3% (This lower rate applies to taxable income earned in Newfoundland and Labrador that qualifies for the federal small business deduction) | 15% |
| Northwest Territories | 2% (This lower rate applies to taxable income earned in the Northwest Territories that qualifies for the federal small business deduction) | 11.5% |
| Nova Scotia | 2.5% (The income eligible for the lower rate is determined using the $500,000 Nova Scotia business limit) | 14% (These rates also apply to the income earned in the Nova Scotia offshore area) |
| Nunavut | 3% (This lower rate applies to taxable income earned in Nunavut that qualifies for the federal small business deduction) | 12% |
| Ontario | 3.2% (The Ontario small business deduction reduces Ontario basic income tax) | 11.5% |
| Prince Edward Island | 1% (This rate applies to taxable income earned in Prince Edward Island that qualifies for the federal small business deduction) | 16% |
| Quebec | 4% | 11.7% |
| Saskatchewan | 1%, until, 1st July 2024, then, 2%, (Income eligible for this lower rate is determined using the Saskatchewan business limit of $600,000) | 12% |
| Yukon | 0% (Income eligible for the lower rate is determined using the Yukon business limit of $500,000) | 12% |
Tax rates and rules can change frequently, and it’s important for businesses to stay updated on the latest tax legislation in the provinces or territories where they operate.
GST/HST on Digital Services
Digital services in Canada are generally subject to a GST rate of 5%. However, the rate may vary by province due to the inclusion of HST.
Digital services, also known as electronically supplied services (ESS), include services delivered over the internet or an electronic network, such as:
Digital Reporting
Canada has already implemented some digital reporting requirements, with more on the way:
GST/HST Registration and Thresholds
GST/HST Returns and Payments
In Canada, GST returns can be submitted digitally. The reporting frequencies are as follows:
Penalties
Achieve Global Invoicing and Tax Compliance with Space Invoices
One way to comply with (e-)invoicing, tax, and reporting regulations in Canada is to use a provider like Space Invoices.
You will be able to:
Do you have questions about achieving compliance in Canada?
We are ready to help.
The information in this guide is strictly informative, as regulations and timelines change frequently. While we make every effort to monitor updates and maintain the accuracy of our content, we recommend consulting with a tax professional or e-invoicing specialist for the most reliable and personalized advice. This guide was last updated on October 25, 2024.
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