Etsy Seller Taxes in Canada: How to Report Sales and What to Deduct

Selling handmade goods, vintage finds or supplies on Etsy is self-employment as far as the CRA is concerned. This guide covers how the income is reported, what Etsy reports, how cost of goods sold and other deductions work, and when GST/HST applies to marketplace sales. It is part of the self-employed taxes hub; side hustle taxes covers the same rules for other kinds of side income.

Business or hobby

The CRA’s guide T4002 defines a business as an activity that you intend to carry on for profit and there is evidence to support that intention. The evidence is the way you run the shop: records of sales and costs, prices set to cover costs, and decisions aimed at making a profit. The CRA’s peer-to-peer selling guidance names Etsy alongside Kijiji, eBay and Amazon and says to report and pay tax on all income from peer-to-peer sales as self-employment income.

How Etsy income is reported

• Form: Form T2125, Statement of Business or Professional Activities, filed with your return; you fill in one for each business you run.
• Lines: the result goes on lines 13499 and 13500 of your return.
• CPP: the CRA says self-employed people pay both the employer and employee parts of their CPP contributions, on Schedule 8; the self-employed tax calculator shows which part is deducted and which earns a credit.

What Etsy reports. Under the Reporting Rules for Digital Platform Operators in Part XX of the Income Tax Act, platforms that let sellers sell goods or provide services such as rentals, rideshare and delivery report each reportable seller's identity and earnings to the CRA every year, starting with the 2024 calendar year, and give the seller a copy by January 31 of the following year. A seller with fewer than 30 sales of goods totalling $2,800 or less in the year isn't reported. Being reported, or not, doesn't change the seller's own tax obligations. The sale of goods is among the activities the CRA lists as covered (reporting rules for digital platforms). For each reportable seller, the platform reports the total paid or credited to you and any fees, commissions or taxes the platform withheld or charged, broken down by calendar quarter. A shop too small to be reported still reports its sales as income, and your own sales and expense records are still what you file from.

Amounts in US dollars. Report everything in Canadian dollars. The CRA’s folio on reporting currency says the rate to use for a given day is the rate quoted by the Bank of Canada on that day, and that the CRA may also accept an average rate over a period for some income items, though not when rates move a lot. Keep a note of the rates you used.

Cost of goods sold

If you make or buy goods to sell, their cost is not deducted when you buy the materials but in the fiscal period the goods sell. Guide T4002 works it out in Part 3D of Form T2125: start with your inventory at the beginning of the year (line 8300), add purchases during the year (line 8320) and any direct wages or subcontracts, then subtract your inventory at the end of the year (line 8500). Inventory includes raw materials, goods in process, and finished goods. You value it either at fair market value for the whole inventory, or item by item at cost or fair market value, whichever is less; you can choose either method in your first year, and then you have to use it consistently. In your first year there is no opening inventory, and the CRA expects a stock count at each year end unless you keep a perpetual inventory system.

Other deductible expenses

The CRA’s peer-to-peer guidance lists, among eligible expenses, costs from using a platform to sell products, marketing costs to bring traffic to your shop, and the cost of materials or services bought in or outside Canada. For an Etsy seller that covers:

• Etsy’s fees: the selling, payment and advertising fees Etsy charges you, as set out in its fee schedule. Fees charged in US dollars are converted the same way as sales.
• Shipping and packaging: postage and courier charges you pay, and packing materials (Form T2125 has a line for delivery, freight and express, line 9275). Shipping you charge buyers is part of your sales.
• A home studio or workspace: A self-employed person can deduct business-use-of-home expenses only if the workspace is their principal place of business, or they use it only to earn business income and on a regular and ongoing basis to meet clients, customers or patients. Only the business part of costs such as heat, electricity, insurance, property taxes, mortgage interest and capital cost allowance is deductible, worked out on a reasonable basis such as the workspace's share of the home's area. The deduction can't be more than the business's net income before it, so it can't create or increase a business loss; any amount not deducted carries forward to the next fiscal period. The home office deduction guide works through the calculation.
• Equipment: see the next section.

The self-employed deductions guide covers the rest of the T2125 expense lines.

Equipment and capital cost allowance

Equipment that lasts is deducted over several years through capital cost allowance (CCA), by class. The CRA’s classes of depreciable property page includes:

The first year is not always a half year. Under the Income Tax Regulations as amended by the Budget 2025 Implementation Act, No. 1, property acquired after 2024 that becomes available for use before 2034 is reaccelerated investment incentive property, with no half-year rule: Class 8 property gets 1.5 times the class rate in the first year if it becomes available for use before 2030. Class 50 property acquired after April 15, 2024 that becomes available for use before 2027 can be deducted in full (100%) in the first year. Small business tax deductions sets out the first-year rules. The T2125 guide covers the CCA chart.

GST/HST on Etsy sales

Whether you have to register follows the general small-supplier rule, counting sales from all your businesses:

Marketplace sales have one more layer. Since July 1, 2021, the CRA’s rules for supplies of goods through platforms have split the job:

• If you are not registered, a distribution platform operator that facilitates your sale has to charge and collect the GST/HST on goods delivered or made available in Canada. Goods mailed or couriered to a Canadian buyer from outside Canada are not covered.
• If you are registered, you charge and collect the GST/HST on your own sales, including those made through a platform.

Registering also lets you claim input tax credits for the GST/HST you pay on materials, supplies and equipment. The GST/HST guide for the self-employed covers registering, input tax credits and the quick method.

A worked example

If you owe tax at filing time, the CRA can ask you to pay by instalments during the following year; first-time self-employed taxes explains when, and the self-employed filing deadline.

Records

The CRA says to keep your records for six years from the end of the last tax year they relate to (unless it lets you destroy them earlier), at your Canadian residence or place of business unless it allows another place; you are responsible for them even when a bookkeeper or accountant keeps them, and you must make them available to the CRA on request. For an Etsy shop, that means your Etsy sales and fee statements, receipts for materials and supplies, your year-end inventory counts, shipping receipts, and the exchange rates you used.

Related guides

• Self-employed taxes hub
• Side hustle taxes in Canada
• Self-employed tax deductions in Canada
• GST/HST on freelance and self-employed income
• Home office deduction for the self-employed
• How to complete Form T2125
• Side hustles hub