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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 many resources available to assist you in understanding when to charge the Goods and Services Tax (GST) or the Harmonized Sales Tax (HST). Your business might even qualify for a GST/HST tax exemption. Here’s what you need to know.
When to charge GST/HST
If you’re wondering when to charge the GST/HST and what are the rules around tax exemption, the short answer is, you charge the GST/HST at the time of sale. However, in practice, there are more nuances to understand, including the potential for GST/HST exemption. Let’s break down how sales taxes work in Canada and the different government guidelines around exemptions.
Tax: What are GST, PST and HST?
The GST is a federal sales tax of five percent, levied 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, some provinces combined their provincial sales tax with the GST to create the HST.
These areas are:
- New Brunswick
- Prince Edward Island
- Newfoundland and Labrador
- Ontario
- Nova Scotia
However, as with all federal laws, each province decides to adopt new regulations or not. The remaining provinces and territories (Alberta, British Columbia, Manitoba, Saskatchewan, Quebec, Northwest Territories, Yukon and Nunavut) chose to keep the new GST separate from their own province’s sales tax. These taxes are referred to as the Provincial Sales Tax (PST), the Quebec Sales Tax (QST) in Quebec and the Retail Sales Tax (RST) in Manitoba.
This requires business owners in these provinces to register for the GST/HST, collect it, and file a GST/HST return with the CRA as well as a return within their respective province.
As always, if your business is in, or does business in Quebec, you’ll file with Revenu Quebec. You can find out more about the rules and process on their website or contact them.
These GST, PST and HST differences can cause difficulties for business owners when it comes to accounting, collections, sales, expenses, invoicing and CRA 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?
Tax exemptions and zero-rated supplies are crucial aspects to consider. The GST/HST applies to goods considered taxable supplies and services. Your business must collect these taxes on anything taxable you sell or provide in Canada. Most goods and services fall in this category. At the end of your reporting period, you can also claim input tax credits (ITCs) for the GST/HST charged during that quarter.
If you’re unsure how to collect or invoice for the GST/HST applicable rates, or exactly what goods and services are considered taxable supplies, refer to resources and on how to invoice for GST and how to invoice for HST.
You can also enlist the help of an accountant or turn to the CRA website, which features a GST/HST calculator. Working with an accountant can help you set up your invoices and understand how much GST/HST to collect based on your province or territory.
Do You Have to Charge GST or HST on Your Sales of Taxable Supplies?
If your business sells anything in Canada, it’s likely your goods or services fall into the category of taxable supplies.
Goods such as toys, jewellery, fuel or computer equipment and services such as hotel stays or rental cars all fall under the GST/HST. 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’re generally not required to collect sales taxes if your business:
- Sells goods/services that are zero-rated by the CRA or otherwise exempt from collection
- Is considered a small supplier
Goods and Services that Fall Under a GST/HST Exemption
If you’re wondering which goods and services fall under a GST/HST tax exemption, the CRA has two levels of exemptions on that front: zero-rated supplies and exempt supplies.
1. Zero-Rated Supplies
Zero-rated supplies are supplies that have a GST/HST rate of 0 percent. Per the CRA guidelines, you wouldn’t charge GST/HST for these supplies, but you would still be able to collect ITCs for the GST/HST payable on property or services acquired to provide them.
Here are some examples of zero-rated supplies, according to the CRA:
- 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 such as fish for human consumption
- Prescription drugs and drug-dispensing services
- Certain medical devices such as hearing aids and artificial teeth
- Feminine hygiene products
- Exports (most goods and services for which you charge and collect the GST/HST in Canada, are zero-rated when exported)
- Many transportation services where the origin or destination is outside Canada
2. Exempt Supplies
Exempt supplies are a little different. They are exempt from the GST/HST – it’s not a 0 percent rate. This means that you don’t collect the GST/HST on them, but you are generally not entitled to claim ITCs on them either. The CRA guidelines state that you can’t register for the GST/HST if your business only provides exempt supplies. There is one very specific exception to that rule: being a listed financial institution resident in Canada.
The CRA lists the following categories as examples of exempt supplies:
- A sale of housing that was last used by an individual as a place of residence
- Long-term rentals of residential accommodation (of one month or more) and residential condominium fees
- Most health, medical and dental services performed by licensed physicians, dentists, nurses and certain other healthcare practitioners, such as optometrists and midwives for medical reasons
Is Your Business Eligible for the Small Supplier GST/HST Tax Exemption?
Now let’s take a look at the other scenario in which you would be exempt from charging the GST/HST: the small supplier tax exemption.
The CRA deems any business with $30,000 or less in revenue to be a small supplier. If you meet the threshold required to be considered a small supplier, you don’t need to register for or charge the GST/HST, regardless of whether you sell exempt or zero-rated goods and services or not.
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 ITCs 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 the GST/HST collection and must collect and remit those taxes.
So, How Much GST/HST Should You Charge?
Now that you understand how GST, PST and HST apply to your company and when to charge GST/HST, 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 the 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. For example, if your business is in Manitoba, you collect the five percent GST and a seven percent RST.
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 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 (or the applicable provincial sales tax based on your location) to remit to your provincial government.
Some areas such as Alberta or the Yukon Territory, do not have a PST, which means you’ll only collect and remit the five percent GST. For more information on place-of-supply rules, consult the CRA website.
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/HST 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.
With Square, you can create specific sales tax settings to track everything in your Dashboard. Square also syncs with popular accounting apps such as Xero or Intuit Quickbooks.
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 percent 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.
From July 2021, new GST/HST rules in Canada may require non-resident vendors and those offering digital sales, to register, collect and remit GST/HST 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.
