Confused by the three different types of sales taxes collected in Canada? When you’re starting your business, figuring out which types of sales tax you’re responsible for can take some work. Small businesses may have to pay one or more of these taxes depending on their geographic location.
Since each province or territory has its own detailed nuances in the tax code, it’s best to consult a tax professional regarding your business’ sales tax before remitting your tax obligation each year. Learn more about these sales taxes, and find out which of these taxes are due in each of the provinces to have an idea of what you might owe.
Provincial Sales Tax, Goods and Services Tax, and Harmonized Sales Tax
As a small business owner, you’re responsible for charging and collecting sales tax any time you provide goods or services to your customers. The provincial sales tax, the goods and services tax, and the harmonized sales tax are the three different sales taxes levied in Canada. Depending on your business location, you may have to charge a combination of PST and GST, GST only, or HST only.
PST is a sales tax levied by the individual province.
GST is a value-added tax levied by the Canadian federal government.
HST is a value-added tax that is a blend of the PST and GST; it is collected by the Canadian Revenue Agency and disbursed to provinces.
Provinces Where PST and GST Are Due
Some provinces require you to collect a combination of PST and GST. Those provinces include:
British Columbia: A 5% GST and a 7% PST are due, for a total tax of 12%
Manitoba: A 5% GST and an 8% PST are due, for a total tax of 13%
Quebec: A 5% GST and a 9.975% PST are due, for a total tax of 14.975%
Saskatchewan: A 5% GST and a 6% PST are due, for total tax of 11%
Some of these provinces have additional special tax situations. For example, Saskatchewan has a separate 10% liquor consumption tax. Quebec has a 5% tax on books, and Manitoba has a 5% tax on lodging. So that means your business may need to collect additional taxes depending on the special taxes in your province and the type of business you run. Your accountant can help you figure out exactly which taxes apply to your specific business.
Provinces Where Only GST Is Due
Four provinces or territories only require you to collect GST. In all cases, the GST is only 5%, bringing the total tax due for these territories to 5%. The GST-only provinces and territories include:
The Northwest Territories
Alberta also has a 4% tax on lodging and a 4% tax on hotel room fees. So if you run a business that provides lodging or hotel rooms, you need to collect the additional tax to meet the special tax requirements in Alberta.
Provinces Where Only HST Is Due
There are five provinces or territories where HST (blending GST and PST) is due. These provinces, along with their total tax rates, are:
New Brunswick: 15% (a 5% GST and a 10% PST)
Newfoundland and Labrador: 15% (a 5% GST and a 10% PST)
Nova Scotia: 15% (a 5% GST and a 10% PST)
Ontario: 13% (a 5% GST and a 8% PST)
Prince Edward Island: 15% (a 5% GST and a 10% PST)
The Small Supplier Rule
If you qualify as a small supplier, you don’t have to register for a GST/HST account. A small supplier is a business owner who collects less than $30,000 in revenue each year. Note this figure refers to revenue and not profits.
However, most provinces do not use the small supplier rule. So if you sell taxable goods or services in a province with PST, you still have to collect and remit PST regardless of your volume of sales, even if you’re not required to collect GST/HST. If you fall into the small supplier category, you can collect and remit PST without worrying about GST. Once you pass the $30,000 threshold, you have to juggle both payments. The rules may vary based on where you do business, and the registration process also depends on where your business is located.
In British Columbia, you can register for a PST account online using eTaxBC. If you prefer the traditional paper application route, you can complete Form FIN 418 (Application for Registration for Provincial Sales Tax) and mail it to the Ministry of Finance. Once registered, you must collect 7% PST on all applicable sales. You’re required to report monthly, quarterly or semi-annually based on the amount of PST you collect. You have the option to report and remit taxes through the online service or using Form FIN 400 (Provincial Sales Tax Return).
In Manitoba, PST is referred to as retail sales tax. You need to collect 8% of each sale. To register, complete Form MBT-RL1, Application for Registration / Dealer’s License, and mail it to the Minister of Finance. If you prefer an online option, register for an account online using TAXcess. You can pay your Manitoba RST online or through the mail, whichever is more convenient for you.
If you sell goods or services in Saskatchewan, you need a vendor’s licence. To register, you need to use the online Corporate Registry, or you can fill out an application form and send it to the Government of Saskatchewan. Once you register, you’re responsible for charging 5% PST.
If you collect more than $7,200 in PST per year, you need to remit sales tax monthly. If you collect between $3,600 and $7,200, you may remit quarterly, and if you collect less than $3,600, you may remit annually. The provincial government sends you a reminder in case your PST payment slips your mind. You need to send in your payment 20 days after the end of the filing period.
In Quebec, PST is called Quebec sales tax, and Revenu Québec collects the QST payments. Quebec is the only province to use the small supplier rule, so you don’t have to register for a QST account as long as you fit within the small supplier definition. Once you surpass that threshold, you need to register for an account and start charging QST. Remit your QST return every reporting period, even if you don’t owe any QST.
GST With Foreign Clients
Should you charge and collect GST/HST on goods sold and services when you’re working with foreign clients? As a general rule, goods that are exported outside of Canada and services rendered to non-residents are zero-rated under the GST/HST rules. This means that they’re technically taxable, but at a rate of 0%, you don’t have to charge anything. You can still claim input tax credits on the taxes you pay as part of producing the goods or rendering the services.
While the general rule is straightforward, there are many exceptions. For example, any services you provide relating to real estate located in Canada are taxable. For intangible property or services, the law contains place of supply rules that help to determine where a supply is considered to have been made, and therefore its tax status. It’s also important to make sure you’re dealing with a true non-resident. Many foreign companies have a substantial physical presence in Canada and may be considered a resident for GST/HST purposes. Some may even be registered with the Canada Revenue Agency. When dealing with new clients, be sure to find out what their status is and document your file, as charging the correct tax is your responsibility.
Taxes Based on Different Types of Supplies
Your location determines which of the three types of taxes you need to charge. But the types of products and services you provide also play a role in whether or not you need to collect taxes. The GST/HST regime revolves around the concept of supply, which essentially means selling goods or providing services. Each supply falls into one of the three possible categories of supplies:
How your office supplies are taxed depends on the category. Understanding how your supplies are categorized is important to ensure that you charge the correct tax to your customers and claim the appropriate input tax credits in your returns while staying in compliance with CRA regulations.
Taxable supplies are the most common supplies under the GST/HST regime. Most property and services supplied or imported into Canada are taxable supplies. Essentially, if the supplies you make aren’t specifically exempt or zero-rated, then, by default, they’re taxable. Common examples of taxable supplies include:
Legal and accounting services
If your business makes taxable supplies of more than $30,000 annually, you must register for the GST/HST and charge it to your clients. You can also recover the GST/HST that you pay on the purchases you make in the course of your business as input tax credits.
As the name implies, exempt supplies are exempt from the GST/HST. As such, if you make exempt supplies, you don’t have to charge the GST/HST to your customers. But you can’t claim input tax credits on the purchases you make. Exempt supplies are specifically listed in the Excise Tax Act, which contains the GST/HST provisions. You should check to see if any of the exemptions apply to your particular business. Examples of exempt supplies include:
Sale of used housing
Long-term rental of apartments and condominiums
Most health, medical, and dental services
Child care services
Most services provided by financial institutions
Zero-rated supplies fall under a separate category, but they’re actually taxable supplies where the rate of the GST/HST is 0%. So you theoretically charge the tax but at a zero rate. You can claim input tax credits on the GST/HST that you pay to make the supplies. Zero-rated supplies typically relate to basic necessities of life. Common examples include:
Basic groceries such as milk, bread and vegetables
Agricultural products such as grain, raw wool and dried tobacco leaves
Most farm livestock
Most fishery products
Prescription drugs and drug-dispensing services
Certain medical devices, such as hearing aids and artificial teeth
Feminine hygiene products.
As a rule, exports are also zero-rated. Even if the goods and services you export are taxable in Canada, they’re zero-rated when exported. Many transportation services where the origin or destination is outside Canada are zero-rated. It’s important to know the type of supply your particular business makes so you know if you need to register for the GST/HST and charge it to your clients. Plus you need to know about the input tax credits you’re entitled to so you can maximize your claims.
Have a System in Place to Collect Sales Tax
If you sell more than $30,000 of taxable goods or services annually, the Canada Revenue Agency requires that you register for a GST/HST account. You can register for an account even if your revenue is lower than the threshold, but it’s not required. Once registered, you must determine which of your goods or services are taxable and charge your customers tax accordingly depending on the sales tax rate in your province. For example, in New Brunswick, harmonized sales tax is 15%, meaning you charge $15 in tax on a $100 purchase. Invoice templates or software can help you calculate GST/HST.
Depending on the volume of business you do, the CRA may send you a personalized GST/HST return monthly, quarterly or annually. As you collect sales tax, deposit the funds in a separate account and remit the sales tax to the CRA using the funds you have set aside.
The frequency and moment at which you need to remit GST depends on the volume of your taxable sales. The law provides for a minimum period, but you can always choose to file more frequently.
If your sales are less than $1.5 million, you must file annually but can choose to file monthly or quarterly. If your sales are between $1.5 million and $6 million, you must file quarterly but may choose to file monthly. If your sales are greater than $6 million, you must file monthly.
For monthly and quarterly filers, the GST must be remitted one month after the filing deadline; for annual filers, it must generally be remitted three months after the filing deadline. Failure to remit the GST on time will result in interest and penalties being charged. Corporate directors may also face personal liability.
Closing Your GST/HST Account
At some point, you may have a valid reason to close your GST/HST account. For example, you may decide to sell or close your business. Or maybe your taxable supplies drop and you qualify as a small supplier, which doesn’t require registration. If a sole proprietor or a partner in a partnership passes away, the executors may need to close the account.
No matter what the reason, you need to close the account with the CRA to avoid having to file returns or having the account become delinquent. To close an account, you can call the Canada Revenue Agency at 1-800-959-5525 or complete and return Form RC145, Request to Close Business Number (BN) Program Accounts.
Sorting out the sales tax types you owe ensures you collect and remit everything correctly from the start.
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Information may be abridged and therefore incomplete. This document/information does not constitute, and should not be considered a substitute for, legal or financial advice. Each financial situation is different, the advice provided is intended to be general. Please contact your financial or legal advisors for information specific to your situation.
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