Dropshipping is becoming an increasingly popular business model.
Whether it’s your first business or a side hustle, dropshipping is enabling entrepreneurs across the world to start their own brands with minimal upfront investment. And platforms like Shopify are further enabling the growth of this model!
But dropshipping comes with its own set of legal considerations – especially in Canada.
In this post, we’re going to discuss some of the key legalities of dropshipping on Shopify in Canada.
Understanding the legalities of dropshipping on Shopify in Canada
Here are a few things you need to consider or know of:
1. Register your dropshipping business
While Shopify makes it easy to get started with dropshipping, registering your business is still essential. This is important for accessing services such as payment processing and building credibility. Here’s what you need to do:
- Choose a business structure – You can register as a sole proprietorship, partnership, or corporation in Canada. Many dropshipping businesses start as sole proprietorships for ease of reporting and regulations.
- Register your business name – Just like brands, you need to operate under a name. This is the name that also gets registered with your provincial or territorial government for future notifications and communications.
- Obtain a business number – To open a business bank account or collect sales tax, you will need a Business Number (BN) from the Canada Revenue Agency (CRA). This number becomes a unique identifier that helps with tax reporting, payroll, import/ export, and other functions.
2. Understand sales tax obligations
Dropshipping businesses are no exception to tax compliance in Canada. Goods sold to customers are subject to GST/ HST or PST based on the province you’re registered in. Here’s what you need to know:
- Collect GST/ HST and PST – If your business’s total revenue exceeds $30,000 in four consecutive quarters, you will need GST/ HST. You may also need to collect and remit PST if you’re selling to residents in British Columbia, Saskatchewan, and Manitoba.
- Charge sales tax on items – When selling to Canadian customers, you need to charge a tax rate based on the customer’s location. Shopify helps you automate tax calculations, making the process much easier as you scale to more regions.
- Remit sales tax – Ensure that you keep track of your sales tax obligations and meet filing deadlines with the CRA or the applicable provincial authority.
3. Know the consumer protection laws
Canada has a set of consumer protection laws to ensure transparency and fair practices. Understanding and complying with these can help prevent disputes. Here’s what it includes:
- Transparent pricing – The laws require prices to be displayed accurately. This includes product price, shipping, duties on international orders, and any additional charges. You can itemize costs for customers with Shopify’s checkout settings.
- Return and refund policies – You are legally required to display the return and refund policies on your Shopify store. This also helps reduce misunderstandings with customers and prevent disputes.
- Data privacy laws – Businesses must protect a customer’s personal information under Canada’s Personal Information Protection and Electronic Documents Act (PIPEDA). This requires you to set up encryption, and payment methods and obtain consent to collect any personal data.
4. Build detailed supplier agreements
Dropshipping requires working with third-party suppliers. This is why it is recommended to set clear agreements around product quality and logistics. You also need to ensure your supplier complies with Canadian regulations.
- Create a contract – Include terms around product quality standards, order processing times, shipping policies, pricing and payment terms, and liability for defective/ faulty products.
- Choose trusted suppliers – Shopify integrates with the best dropshipping apps like Oberlo and Spocket. This helps you connect with vetted suppliers and avoid quality issues.
5. Be aware of Intellectual Property (IP) Laws
When running an online business, you need to be cautious about intellectual property rights. Here’s what you need to know:
- Use trademarked products – When dropshipping, ensure your supplier has the right to distribute them as selling counterfeit or unauthorized goods can lead to legal issues that damage the brand’s reputation.
- Register your trademarks – Create a unique brand name, logo, slogan, and other business identifiers. Trademark with the Canadian Intellectual Property Office (CIPO) to get exclusive rights to your identity. This can also help create a differentiator in competitive markets.
6. Marketing and advertising compliance
As you start to scale your dropshipping business, you will need to run several marketing and advertising campaigns. But in Canada, you need to comply with some regulations:
- Avoid false advertising – It is prohibited to advertise false, misleading, or deceptive value propositions. Be transparent about product details, quality, pricing, and delivery times.
- Anti-spam compliance – If you intend to use email and SMS for marketing, Canada’s Anti-Spam Legislation kicks in. This requires you to obtain consent before sending promotional emails.
Starting a dropshipping business on Shopify is easy.
But if you tap into the Canadian market, it’s important to understand the ins and outs of all the legalities. This helps you set yourself up for success from the beginning and not let compliances or tax complications come in the way of growing your brand online!
