Canadian Tax Rate Issue. Check Your Store Settings Immediately!

Shopify Partner
32 0 0

Wanted to see if others have experienced the same issues. Be sure to check your settings. 

We just discovered that somehow Shopify changed the tax settings for Canada for all of the stores we have access to. We charge a flat percentage for all of Canada and don't have specific province taxes. The issue is that Shopify somehow changed the province tax overide settings for New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island across all of our stores which inadvertently gave free taxes to many orders. Lots of lost tax revenue. 

For one store of ours, we have a 30% tax rate set up, but for customers in Ontario Shopify was applying a 0% tax rate! 

This defintiely wasn't us that manually changed the settings as it's consistently the same setting changes across 6 stores. It can't be an app changing these settings since there is no API access to tax rates. 

After investigating we noticed that taxes weren't charged for orders all the way back to March 4, 2018!

To check your settings, assuming you have Canadian taxes setup, go to: yourstore.myshopify.com/admin/settings/taxes/CA. (Change yourstore.myshopify.com to your myshopify.com url)

Have you experienced the same issue?

Here's a screenshot of one store: 

Here's a screenshot of another store: 

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Shopify Partner
32 0 0

I just tested adding Canada as a new tax region in a development store and sure enough, the new default is to override your national tax at 0% for New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island.

Here's a screenshot of a brand new installation. Notice that the above provinces have "instead of" setup.

I've contacted Shopify support but am waiting to hear back.

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Excursionist
69 0 13

> We charge a flat percentage for all of Canada and don't have specific province taxes.

Why do you do this?  In most, if not all, cases doing it this way is not in accordance with Canadian law and will probably get you into trouble.  Do you have some very unusual product for which the tax rules are different?

The "instead of" setting defaults the way it does because that's how Canadian sales taxes work.  There is a Federal tax (GST) which applies everywhere.  There are Provincial taxes (PST) which are different per province and in some cases, such as British Columbia, they are added separately - for sales to B.C. you're supposed to charge 5% GST plus 7% PST.  But in other provinces, such as Ontario, the Federal and Provincial tax rates are combined, and in that case you charge just the combined rate which is then called HST (13% for Ontario).  Where HST applies, it replaces GST.  But where PST applies, it is added to GST.

The Shopify default configuration reflects that situation.  You enter the Federal GST rate, and for provinces with a separate PST you enter those rates, and for provinces with an HST you enter the combined rate which replaces the Federal rate.  I think the only reason this setting is adjustable at all is because there are some special classes of products (for instance, automobiles) that may not use the default rates and require some kind of override.  But it's rare that a Shopify merchant would ever be selling such things.

Entering a rate structure other than the one set by the law is probably a bad idea and I don't think it's any surprise that Shopify doesn't do it by default.

Note that you are only allowed to collect these taxes if you are registered with the appropriate Federal and Provincial authorities; and depending on the province, you may be required to register and collect them.  (In a few provinces, like Saskatchewan, it's optional for out-of-province vendors.)  If you're collecting a percentage from the customer and calling it "tax" when you're not registered, that's another thing likely to get you into trouble.

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Shopify Partner
32 0 0

@Matthew Skala Thanks for the reply.

We charge for applicable duties and taxes (GST, HST, etc.) using Shopify's tax settings. The only other way to include duties in any real-time calcuations would be via Shipping charges, which doesn't make much sense. This is the reason why we use a flat, normalized tax as there are no other ways to charge appropriate import duties. 

The issue is that the default tax settings that we set up didn't use any overrides and worked as we planned. In early March it seems, Shopify decided to override and change out settings without notice that resulted in some customer's orders receiving a 0% tax rate, which ultimately left us with the duties / taxes bill. 

If you make changes to your store's settings, Shopify shouldn't be changing how they work without notice. 

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Excursionist
69 0 13

> We charge for applicable duties and taxes (GST, HST, etc.) using Shopify's tax settings. The only other way to include duties in any real-time calcuations would be via Shipping charges, which doesn't make much sense.

I see.  That explains the higher rate, anyway.

If Shopify changed the settings you had, it certainly seems like a problem, independent of whether those settings were correct or what the default should be.  I encountered something similar (thread:  https://ecommerce.shopify.com/c/accounting-and-taxes/t/changes-to-shipping-cancelled-tax-settings-49... ) when I changed my shipping settings.  Removing the shipping zone for Canada (when I switched to worldwide free shipping) had the effect of also removing all the tax settings without any warning.  Fortunately, only one order went through untaxed before I caught it.  I imagine Shopify's point of view would be that I did it to myself by removing the shipping zone, but it's not obvious that tax settings would be linked to shipping rates.  Shopify support never really gave me an answer on this when I tried to bring it to their attention.  Maybe something like that is also what happened in your case; if your store's shipping settings changed, it could have indirectly affected the tax settings.

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Shopify Partner
32 0 0

That's the concerning part. 

No shipping settings or tax settings changed. Initially all tax settings were set up as "added to", which would ultimately have no effect on the ultimate rates paid by the customer. But for some reason they reverted back to "instead of" rate overrides which affected the rates customers paid. 

We'd expect and HOPE that if we set up settings in a particular manner that they would not change unless we manually do it or Shopify gives us advanced notice.

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Shopify Partner
52 0 27

Hi everyone,

Jan from Sufio here.

We have put together a comprehensive guide to help you Set up Canadian Taxes. It covers all the necessary information regarding GST/PST and HST charges.

You should also consider providing legal invoices to your Canadian and International customers using our Invoicing app for Shopify stores. Our invoices are fully compliant with accounting legislations around the world, in over 30 languages.

Hope this helps!

Jan @ Sufio, Beautiful Invoices

 

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