Whether you sell handmade jewelry, digital downloads, vintage clothing, or custom art on Etsy, your income is taxable in Canada. Etsy does not withhold taxes or issue Canadian tax slips — that responsibility falls entirely on you. This guide covers how to report Etsy income, what you can deduct, your GST/HST obligations, and how to stay compliant with the CRA.
Is Your Etsy Shop a Business or a Hobby?
The CRA does not distinguish between “hobby” and “business” the way some sellers expect. If you earn a profit — or have a reasonable expectation of profit — your Etsy shop is a business for tax purposes.
Factors the CRA considers:
- Do you operate in a businesslike manner (records, pricing strategy)?
- Do you have recurring sales or growth?
- Are you making decisions to improve profitability?
- Do you have prior experience in the field?
Even occasional sellers must report Etsy income. The distinction matters mainly when you have a loss — only a business with a reasonable expectation of profit can deduct losses against other income.
How Etsy Income Is Reported
Etsy shop income is reported as self-employment business income on Form T2125 (Statement of Business or Professional Activities), filed as part of your T1 General return.
Tax type: Business income (self-employment) Line on T1: Net business income flows to Line 13500 CPP: You pay CPP on net self-employment income (approximately 12.8% combined)
Etsy’s Fees — All Deductible
All fees Etsy charges you are fully deductible business expenses:
| Fee | Amount | Deductible? |
|---|---|---|
| Listing fee | $0.20 USD per item | Yes |
| Transaction fee | 6.5% of sale price | Yes |
| Etsy Payments processing fee | 3% + $0.25 CAD | Yes |
| Etsy Ads spend | Varies | Yes |
| Etsy Plus subscription | $10 USD/month | Yes |
| Currency conversion fees | Varies | Yes |
Note on USD amounts: Etsy charges many fees in USD. Convert to CAD at the Bank of Canada exchange rate on the date of the transaction when reporting.
Material Costs and Cost of Goods Sold (COGS)
Your cost of goods sold is the direct cost of making the items you sell:
- Raw materials (yarn, fabric, metal, wood, resin, etc.)
- Components and findings (clasps, hooks, wire)
- Packaging materials (boxes, tissue, bags, tape)
- Craft supplies consumed in production
Calculate COGS as: Opening inventory + Purchases − Closing inventory = Cost of Goods Sold
Keep receipts for all material purchases. Organize by supplier and date.
Shipping Costs
Shipping expenses paid out of pocket — postage, Canada Post fees, courier charges, packing materials — are fully deductible. If you charge buyers for shipping and receive that amount through Etsy, both the revenue and the cost are included in your income and expenses.
Home Studio and Workspace Deductions
If you create products or manage your Etsy shop from a dedicated workspace at home, you can deduct a portion of home expenses based on the percentage of your home used for the business:
Home-use percentage = Workspace area (sq ft) / Total home area (sq ft)
| Home Expense | Deductible Portion |
|---|---|
| Rent or mortgage interest | Home-use % |
| Property taxes | Home-use % |
| Utilities (electricity, heat) | Home-use % |
| Internet | Home-use % (or higher if business is the primary use) |
| Homeowner/renter insurance | Home-use % |
| Home repairs (whole home) | Home-use % |
Important: Home office deductions cannot create or increase a business loss — they can only reduce income to zero. Unused home office expenses carry forward to future years.
Equipment and Capital Cost Allowance
Equipment purchased for your Etsy business is not fully deductible in the year of purchase. Instead, it is depreciated using Capital Cost Allowance (CCA):
| Item | CCA Class | Annual Rate |
|---|---|---|
| Computer, tablet, camera | Class 50 | 55% (year 1); 55% ongoing |
| Printer, scanner | Class 8 | 20% |
| Sewing machine, kiln, tools | Class 8 | 20% |
| Furniture (desk, shelves) | Class 8 | 20% |
In the year of purchase, the half-year rule applies — you can only claim 50% of the normal CCA in the first year.
GST/HST for Etsy Sellers
Etsy’s GST/HST Collection (Since 2022)
Etsy began collecting and remitting Canadian GST/HST on sales to Canadian buyers in July 2022. This means buyers pay GST/HST to Etsy — but this is Etsy’s own regulatory compliance, not yours.
Important: Etsy collecting GST/HST on sales to buyers does NOT eliminate your own GST/HST registration and remittance obligations if your income exceeds $30,000.
Your GST/HST Obligation
If your total taxable self-employment income (Etsy sales + any other side hustle income) exceeds $30,000 in a 12-month period, you must:
- Register for a GST/HST number with CRA
- Charge GST/HST on your sales to buyers (note: Etsy may handle this for Canadian buyers)
- Remit the GST/HST to CRA
- File GST/HST returns
Input Tax Credits: Once GST/HST registered, you can reclaim GST/HST paid on business inputs (materials, supplies, equipment) as Input Tax Credits — reducing your net GST/HST remittance.
Record-Keeping for Etsy Sellers
Good records prevent CRA problems and maximize your deductions:
- Download your Etsy shop statement monthly — available in Etsy shop manager under Finances → Monthly Statements
- Keep all material receipts — digital or paper; CRA accepts both
- Track mileage if you drive to craft fairs, post office, or supplier pickups
- Photograph your workspace annually to support home office claims
- Keep records for 6 years — CRA’s standard audit window
Sample Tax Calculation
| Item | Amount |
|---|---|
| Gross Etsy revenue | $18,000 |
| Etsy fees (listing, transaction, processing) | −$1,750 |
| Materials and COGS | −$4,200 |
| Packaging and shipping supplies | −$600 |
| Home studio (10% of $12,000 home expenses) | −$1,200 |
| Equipment CCA (camera, sewing machine) | −$800 |
| Net business income | $9,450 |
| Federal + Ontario tax (~26% effective) | ~$2,457 |
| CPP on net earnings (12.8% on $9,450 − $3,500) | ~$762 |
| Total tax and CPP | ~$3,219 |
Setting aside 30–35% of gross revenue covers taxes, CPP, and most unexpected expenses.