Configuring tax for Canada in Magento

Recently we developed three Magento websites for Canadian customers. During these developments of Magento stores, One of the challenges was to configure sales tax in Magento specific to Canada. The tax system of Magento is flexible enough where you can configure tax for Canada or any other country.

Some basics of the Canadian Tax System

Before we go in detail of setting up tax for Canada in Magento, we should understand some basics of the Canadian tax system. The below table shows how tax is structured in Canada.

Canada’s Province Provincial rate (HST, PST, QST) GST Total
Alberta 0% 5% 5%
British Columbia (BC) 7% PST 5% 12%
Manitoba 8% PST 5% 13%
New-Brunswick 8% HST 5% 13%
Newfoundland and Labrador 8% HST 5% 13%
Northwest Territories 0% 5% 5%
Nova Scotia 10% HST 5% 15%
Nunavut 0% 5% 5%
Ontario 8% HST 5% 13%
Prince Edward Island (PEI) 9% HST 5% 14%
Québec 9.975% QST 5% 14.975%
Saskatchewan 5% PST 5% 10%
Yukon 0% 5% 5%

Four types of sales taxes exist in Canada. On top of all in Canadian GST that applies throughout the country and is taxed at 5%. Other than that Provincial Sales Taxes (PST) are collected in selected provinces as per the table above. Another tax is Harmonized Sales Tax collected by New-Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, Prince Edward Island Province at varying rates as shown in the above table. Quebec collects another tax named Quebec Sales Tax at a rate of 9.975%. Please note, these rates are like this at the time of writing this article. Actual rates should always be double-checked with the relevant authorities.

Going into the actual tax configuration for Canada in Magento

As we got a fair understanding of the tax system, its time to start doing actual configuration. First of all, we will create tax rates applied in various provinces of the country.  Go to Sales > Tax > Manage Tax  Zones and Rates. Click on Add New Tax Rate.

First of all, we will add standard Canadian GST that applies to all Sales. Enter the name of the tax rate in the Tax Identifier field. This will appear on the customer invoice. Select Canada from country and * from states as this applies to all states. enter 5% in the Tax Rate field.

Repeat the same process for other tax rates but you need to select respective province because all other tax rates are province-specific. Once you are done, we should have our all tax rates looking something like this –

Canada Tax Rates Magento

Setting up Tax Rules

Once we have our rates entered, we will create a combined tax rule for each tax category. We have four categories of tax and we will create this one by one. Go to Sales > Tax > Manage Tax Rules from your Magento admin click Add New Tax Rule. Let’s start with Canadian GST.

Enter the name of Rule, I used Canadian GST as the name of my tax rule. Select relevant customer, and product tax class. From the Tax Rate selection choose only Canadian GST for this rule and set 1 for priority. So it looks like below in my Magento –

Canadian GST

Further, we will create the rest of the three tax rules the same way. For Provincial Sales Tax and Harmonized Sales Tax we need to choose all province wise applicable tax rates. So once completed it should look like below –

Canada Tax Rate List

One thing to note about the priority of tax here. Magento adds tax rates at the same priority and calculates tax rates on the subtotal after that. Tax rates having different priorities are compounded which means Magento will first calculate tax on the lowest priority number (1) first and add this to the subtotal. Tax rule with further priority will be applied to the new subtotal and it will keep on until there are tax rates available for further calculation. If any of these tax is calculated using the compound method, we can change the priority based on that.

Tax Configuration

The configuration is the most important part of Magento commerce and having the right configuration as per your store requirement is equally important. Here we are going through some of the tax-related configurations in Magento –

Showing Complete Tax Summary – By default, Magento only shows a single line for all tax applied everywhere. We might need to show the complete tax summary to the customer so he/she can check the details of all tax applied. To enable this option go to System > Configuration and from there choose Tax under Sales menu from the left-hand side. Change display full tax summary to Yes under Shopping Cart Display Settings.

Other Tax Settings – You may also want to check and change other tax settings available in System > Configuration, Sales menu from Left and Tax.

I hope this will help someone else looking to Configuring tax for Canada in Magento.

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