Our Canadian sales tax system has federal and provincial components. To simplify the differences, review each province’s tax system.
Goods and Services Tax (GST) is a 5% federal government value-added tax. It applies to almost all goods and services across the entire country. Alberta, Northwest Territories, Nunavut, and Yukon are the provinces and territories are jurisdictions that use it as their singular sales tax.
Provincial Sales Tax (PST) is a tax applied in British Columbia (7%), Manitoba (7%), Quebec (9.975%), and Saskatchewan (6%) in addition to the GST. In these provinces, you would add the two rates together to get the applied total sales tax.
Harmonized Sales Tax (HST) combines the GST and the PST in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. In only collecting a single tax, the system is easier to administer. Except for Ontario at 13%, these provinces charge 15% HST.
What is Subject to Sales Tax?
Being a broad-based consumption tax, most property and services are subject to tax. Generally, this would include sales of consumer goods, services such as labour charges, leases of commercial real property and sales of digital or electronic commerce like software.
The rates applied depend on the location where the purchaser takes delivery of the goods or where the product will be used. There can be variations in the application, so it is best to check which tax would apply before finalizing the sale.
Do I need to register for GST / HST?
You must register if you make taxable sales, leases and supplies in Canada and are not defined as a Small Supplier. A small supplier is someone, and all persons associated with that person, with a total worldwide taxable revenue equal to or less than $30,000 in a single calendar quarter, over the last four consecutive calendar quarters.
You may choose to register voluntarily if you make taxable sales, leases, or other supplies in Canada. While you would now be obligated to collect sales tax, you may also be eligible to claim input tax credits for the tax you pay on goods and services you purchase for your business.
What tax can be claimed as an Input Tax Credit (ITC)?
Almost all products or services you buy in Canada will be subject to sales tax. Where you are not sure, it is best to contact us. ITCs can be claimed for expenses such as:
- business start-up costs and use-of-home expenses
- delivery charges
- fuel
- professional fees
- maintenance and repairs
- the allowable portion of meals and entertainment
- vehicle expenses
- office expenses
- rent
- utilities
- travel
There are exceptions for which you cannot claim an ITC:
- certain capital property
- taxable supplies and services bought to make exempt supplies of property and services
- membership fees to any club whose main purpose is to provide recreation, dining, or sport
- property for personal consumption
Keep those invoices and receipts!
For all of your sales, you must issue (and keep) a valid invoice that lists:
- Your legal business name
- Your HST number
- The product or service supplied
- The date goods were supplied
You’ll also need to keep an invoice or receipt for every expense you wish to claim in your HST/GST tax return. Check that your suppliers provide a receipt/invoice with all the information about their business listed above.
While the government will not usually ask to see these documents, you must keep a copy available for at least seven years. This will be helpful when it comes to filing your income tax return each year and in the event of an audit.
As always, it is best to seek out professional assistance when you have questions about sales taxes in Canada. Reach out to our office anytime you are not sure.