It’s one of the most misunderstood items on a Canadian shipping invoice: the tax. Many small and medium-sized businesses believe that the Sales Tax/HST on Shipping Costs follows the province where their business is located. That's incorrect, and the mistake is repeated on every order until someone notices it.

The actual rule is simpler than it seems, but it's surprising: in most cases, it's the destination province which determines the applicable rate. A Montreal-based small business that ships to Halifax does not charge 14.975 % as it would in Quebec—it applies Nova Scotia’s HST.

Here's how the tax actually applies to shipping costs in 2026, when your shipments are tax-exempt, and the mistakes that cost Canadian small businesses dearly.

Are shipping costs subject to tax?

Yes, in the vast majority of cases. When you sell a taxable item and charge your customer for shipping, the shipping costs are part of the taxable supply. You therefore collect GST/HST on the total amount, which includes both the product and the shipping costs.

Two principles underpin everything else:

• Delivery follows the product. If the item being sold is subject to tax, the shipping costs are also subject to tax. If the item is tax-exempt (certain staple foods, for example), the associated delivery charges are generally tax-exempt as well.
• The rate varies depending on the destination. For goods shipped from one province to another, the province where the customer receives the goods determines the rate.

What rate should be charged based on the destination province?

Here are the rates applicable in 2026, based on the shipment's destination.

These rates are for reference only and are subject to change. Some provinces have adjusted their provincial component in recent years. Always check with the CRA, Revenu Québec, or your accountant before setting up your store.

The practical impact: A Calgary-based small business that sells 500 $ worth of merchandise plus 25 $ in shipping charges to a Toronto customer charges the Ontario HST of 13 % on the 525 $, rather than the Alberta GST of 5 %. The 42 $ difference on a single order quickly becomes a compliance issue if it recurs.

When Your Shipments Are Exempt from Tax

«Tax-exempt» does not mean «exempt.» A tax-exempt service is subject to a 0.1% tax: you do not collect any tax from the customer, but you retain the right to claim your input tax credits. This is an important distinction for your cash flow.

The main cases of tax exemption in freight transport:

• Exports. A freight service with a destination outside the country is generally exempt from tax. You do not add GST/HST to the delivery of a package to the United States or Europe.
• Domestic transportation is part of a continuous service originating abroad. If a package arrives from abroad and the Canadian leg is part of the same continuous service, that leg may be exempt from duties, provided that the terms were established by the original shipper.
• Certain interline transportation services between carriers, in accordance with the terms of the contract.

Be aware of a subtle distinction that often trips up small and medium-sized businesses: if you sell goods for export, the transportation is exempt from tax, but this does not automatically mean that all related transactions are also exempt. Commissions paid to a freight forwarder acting as an agent for a Canadian shipper remain taxable, even when the goods are shipped internationally.

Input Tax Credits: The Forgotten Money

This is where many small businesses leave money on the table. The GST/HST that you pay Shipping costs incurred with Purolator, UPS, FedEx, or Canada Post at your own expense are recoverable through input tax credits (ITCs), provided that these expenses are used for taxable business activities.

Do the math. An SME that ships 3,000 $ per month pays approximately 390 $ in HST in Ontario. Over the course of a year, that amounts to nearly 4,700 $ in recoverable HST—provided you keep detailed invoices and report them correctly on your returns.

Carriers’ invoices must include the supplier’s GST/HST registration number and the tax amount. A credit card statement is not sufficient to support a claim in the event of an audit.

Five Common Mistakes to Correct

1. Set up your store to use your province's tax rate

Most e-commerce platforms allow you to set tax rules based on the destination province. If your store uses a single tax rate, correct this immediately: you are overcharging some customers and undercharging others.

2. Treat shipping costs as non-taxable

Invoicing shipping as «tax-excluded» on a taxable sale creates a liability to the CRA. You will owe the tax even if you never collected it from the customer.

3. Forgetting to claim tax credits on invoices from carriers

These invoices often arrive via email or an online portal and don't always go through the accounting department. Set up a monthly collection process.

4. Applying the GST to an export shipment

Charging a tax on a tax-exempt service undermines your competitiveness and requires you to remit it.

5. Ignoring the small-supplier threshold

If your taxable income is less than 30,000 $ over four consecutive quarters, registration is not required. However, registering voluntarily allows you to claim tax credits on shipping costs—which is often beneficial if you ship a lot.

Key Takeaways

The GST/HST on shipping costs follows two simple rules: the tax treatment of the shipment is determined by the tax treatment of the product, and the tax rate is based on the province of destination. Exports are tax-exempt, and the tax you pay on your own shipments is recoverable.

Three concrete steps to take this week: check the tax rules by province for your online store, gather your shipping invoices from the past 12 months to validate your ITCs, and confirm with your accountant how your international shipments are being handled.

Want to lower your bill before even adding tax? Compare rates from Canadian carriers and get discounted rates for your small business with Shipping Store.

This article provides general information and does not constitute tax advice. The rates and rules listed are for informational purposes only and may vary depending on your circumstances, your agreement, and the nature of your supplies. Consult an accountant or tax professional regarding your specific situation.