This article is for informational purposes only and does not constitute legal, accounting, or tax advice. The information contained herein is subject to change and may vary from time to time in your region. For specific advice applicable to your business, please contact a professional.
Running a business takes guts. Hiring employees, creating workable schedules, managing tax and juggling personal obligations can make your head spin.
Day-to-day operations and management are enough in themselves, and scheduling, payroll and inventory are big creatures to tame. But the government of Canada holds businesses accountable for much more than mere daily operations – goods and services, provincial or harmonized sales taxes (GST/PST/HST). Yep, that’s a lump in your throat.
But rest easy. There are plenty of resources that can help you understand when you need to charge the GST/HST. In fact, your business might even have an exemption. But if it’s not, when do you charge the GST/HST? The short answer is at the time of sale – but there’s a bit more that goes into understanding the GST/HST.
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Tax: What are GST, PST and HST?
The GST is a federal sales tax of five percent that’s imposed on most goods and services sold and purchased across Canada. Certain retail, real estate and personal services have the tax attached. This tax was first imposed in January 1991 to replace a 13.5 percent tax, known as the manufacturer’s sales tax, that was tucked into all goods and services pricing up to that point. The Canada Revenue Agency (CRA) introduced the GST to bring a bit more transparency to taxation – to streamline and improve it, especially within the world of exports.
Each province in Canada has its own sales tax applied to purchases. When the GST took effect, six provinces or regions blended their provincial sales tax with the government’s GST to create a harmonized sales tax (HST). These areas are:
• New Brunswick
• Prince Edward Island
• Nova Scotia
But, as with all federal regulations, each province has the option of adopting a new regulation or not, and not all provinces opted for this change. The remaining provinces chose to keep the new GST separate from their own province’s sales tax. This means that business owners in these provinces must collect and account for the GST and the PST and file a GST return with the Canada Revenue Agency (CRA) as well as a PST return within their respective provinces. As always, if your business is in, or does business in, Quebec, you’ll file with Revenu Quebec. You can contact them via their website or by calling 1-800-567-4692.
These GST, PST and HST rate differences can mean headaches for business owners when it comes to aspects of everyday business, such as accounting, collections, sales, invoicing and the Canada Revenue Agency tax filings. But there’s no need to feel overwhelmed. You can learn what’s expected of you and your business one step at a time. The first step is understanding what’s considered a taxable good or service according to the CRA.
Which Goods and Services are taxable in Canada?
The GST and HST apply to goods that are considered taxable. Your business must collect these taxes on anything you sell or provide in Canada that falls under the umbrella of ‘taxable’. At the end of your filing season, you can claim an input credit for the taxes you collected during that quarter. Most goods and services fall in this category. If you’re unsure how to collect or invoice for the current tax rates applicable to your transactions, or exactly what goods and services are taxable, take a look at how to invoice for GST and how to invoice for HST.
These resources provide an overview as to how to set up your invoices and what to collect depending on your province or territory.
As of December 2020, a temporary zero-rating GST/HST now applies to all approved face masks and face shields purchased as supplies. The zero-rating will remain in effect until the federal government deems these supplies no longer necessary in reference to COVID-19.
Do You Have to Charge GST or HST on Your Sales?
If your business sells anything in Canada, it’s likely that your goods or services fall into the category of taxable. Goods such as toys, jewellery, fuel or computer equipment, and services such as hotel stays or rental cars all fall under the GST. You should also be aware that advertising falls under this category unless you’re providing the service for a business or individual that does not reside in, or have citizenship within, Canada.
You don’t have to collect the tax if your company:
• Sells goods/services that are zero-rated by the CRA or otherwise exempt from collection
• Is considered a small supplier
Exempt goods include medical equipment, groceries and exports. If you give lessons, such as how to play the piano or guitar, or you provide childcare, you’re exempt from collecting and remitting GST/HST.
The CRA deems any business with $30,000 or less in revenue to be a small supplier. If you don’t qualify as exempt under the zero-rating or you sell items or services that are otherwise exempt, you don’t need to register for or collect GST/HST.
Is Your Business Considered a Small Supplier in Canada?
Your business must meet at least one of the following conditions to have small-supplier status granted:
• Sole proprietorship with less than $30,000 in total revenues in each of the four previous quarters.
• Partnership or corporation with less than $30,000 in total revenues in each of the four previous quarters.
• Public service entity with less than $50,000 in total revenues stemming from all activities in each of the four previous quarters.
Gross revenue thresholds apply to all charitable organizations and public service entities. In all the above types of businesses, total revenue equals your worldwide sales of goods and/or services that are subject to GST or HST, less your company’s expenses. The only items you do not include in your revenue calculations are:
• Goodwill provisions
• Financial services
• Capital property sales
If your revenues top the amounts and conditions listed above, you no longer have small-supplier status and must register with the CRA for a business number.
If your business is a small supplier, you’re not legally mandated to register for GST/HST collection, but voluntary registration means that:
• You can claim input tax credits on your CRA return.
• If you ever lose your small-supplier status, you’re already registered for collection and are ahead of the game.
It’s important to note that there are exceptions to these exemptions. For instance, if you drive or operate a taxi or limousine service, you must charge and remit GST/HST regardless of whether you would qualify for small-supplier status. The same is true for performers. Say an American singer holds a concert in a Canadian venue. That artist must register for GST/HST collection and must collect and remit those taxes.
So, What Should You Charge?
Now that you understand how GST, PST and HST apply to your company, it’s time to calculate what you should collect for applicable sales.
If your business is in, or does business in, certain provinces, such as Ontario or New Brunswick, you charge HST because these are among the provinces that have opted to combine the federal government’s five percent GST with their own provincial sales tax.
For instance, if your business is in Ontario, you will collect 13 percent of the sales amount as HST. Provinces that have elected to keep their provincial taxes separate from the GST, such as Manitoba, collect the GST and PST separately. If your business is in Manitoba, you collect the five percent GST and an eight percent retail sales tax (RST). The RST is this province’s PST.
For provinces that collect HST, the filing process is straightforward – your remittance is equal to all taxes collected and you remit using just one form. If you’re in a region that collects GST and PST/RST separately, you must keep these two figures separate and, when it’s time to file, prepare two forms – one for the GST you’ve collected to remit to the CRA and one for the PST/RST to remit to your provincial government.
Some areas such as Alberta or the Yukon Territory, do not have a PST or RST, which means you’ll only collect and remit the five percent GST.
How Can You Keep Track of Your Tax Collections?
Having an accountant on your payroll is a good idea, even for small businesses. But if you prefer handling your own company finances, you’ll need to have the following when it comes time to file your GST return with the CRA:
• Records of how much GST/HST you’ve collected
• Records of how much GST/HST you’ve paid
• Records separately highlighting your GST collections and payments, and your HST collections and payments
If you perform your own company accounting or your accountant is on-site, implementing the use of a Canadian accounting software program can make this task much easier. Some programs track your GST and HST for you, automatically keeping these two figures separate. You can run reports whenever you want to see where you stand and ease your mind when it’s time to file for your input.
How Much Time Do You Have to File for Input Tax Credits?
You can file for input tax credits on all eligible purchases that occurred within the reporting period you’re filing for. But sometimes businesses have credits they didn’t claim in a past period that are still available to them.
If you have credits you haven’t claimed, you normally have four years from the date your return was due for the period in which you made the eligible purchases. This time frame reduces to two years if your company is listed as a financial institution or has listed annual revenues more than $6 million for the two years prior to the one in which you file to recoup the credit.
Even if you happen to fall into the second group listed above, there are circumstances that still provide you with four years to file, such as:
• Your business is a charitable organization.
• Your supply of goods/services in the previous two years was 90% taxable goods/services.
If the two-year limit is imposed, you’re granted two years from the end of the year in which you could have originally claimed the credits.
Additional Updates for 2021/2022:
From July 2021, new GST rules in Canada may require non-resident vendors and those offering digital sales, to register, collect and remit GST on sales made in Canada.
From April 2021, all British Columbia retail sellers of soda beverages are required to register to collect and remit PST.
We will continue to update this page as tax laws and other information changes.
Maintaining accurate records is crucial – not only for your overall bottom line, but to maintain CRA and provincial compliance. With the power of Square behind you, you can keep looking ahead.