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Sales Tax Guide for Canadian Business Owners

Updated: Jan 5


ReInvestWealth is a free accounting software that simplifies sales tax returns for Canadian business owners.

When you buy a good or service, you will often see an additional fee over the initial purchase price. Those added fees are infamously known as sales tax, which benefit both the business and the government, but are a bane of the end consumer. If you’re the owner of a Canadian business, you need to understand how sales tax works and how it applies to your business, after all sales taxes and business go hand in hand.



Overview

Being a business owner is hard, and sales taxes really do not help make things easier. In this piece we will be covering everything about Canadian sales taxes, from what it is, to when to register for it with tax agencies, to sales tax remittance, to how to keep track of taxes, and more!


This article is meant for Canadian business owners, who want to learn about sales tax and its importance. We will discuss the sales tax for each province (yes, each province has their own sales tax) so that you can find the information that is most applicable to you.


This will be an in-depth article covering everything you need to know about sales taxes in Canada. We have a shorter sales taxes in Canada article for those looking for a quick recap.


 

Table of Contents


General Information

Rates, Refunds and Remittance

Additional Information

National vs. International Sales Tax

How Accounting Software Helps Manage Sales Tax

 

ReInvestWealth free accounting software. Supercharge your business finances with smart accounting tools. Simplify bookkeeping, automate tax filings, get advice based on cash flows, and more, all in an easy to use app.


What is sales tax and why does it exist?

A tax is a mandatory fee individuals and corporations must pay to government entities. We have mentioned the term “sales tax” multiple times already, so you might be wondering, even though you vaguely understand what it is, exactly what it means. A sales tax is a tax imposed on the sale of most goods and services.

Most goods and services supplied in or imported into Canada are subject to sales tax however there are 3 types of supplies to know.


Taxable supply (most good and services are subject to sales tax)

  • Business tools

  • Laptops & computers

  • Office supplies

  • Phone & Internet bill

  • Restaurant meals

  • Gasoline

  • Sales and leases of automobiles

  • Hotel accommodation

  • Legal and accounting services

  • Commercial Rent

  • Repairs

  • Taxi or commercial ride-sharing services

  • And much more


Zero-rated supply (good and services subject to 0% sales tax)

  • Sales of certain goods or services exported outside Canada

  • Agricultural products (ex: grain, raw wool, and dried tobacco leaves)

  • Most farm livestock and fishery products

  • Prescription drugs and drug-dispensing services

  • Feminine hygiene products

  • Basic groceries (ex: milk, bread, and vegetables)

  • And more



Exempt supply (good and services not subject to sales tax)

  • Health, education, childcare and legal-aid services

  • Government services

  • Financial services

  • And more


Federal and Provincial sales tax


GST

First, we have the Goods and Services Tax (GST), which is the Federal sales tax applied to most goods and services in Canada.


PST (QST in Quebec)

Second, we have the Provincial Sales Tax (PST). Each province chooses the PST rate in their jurisdiction. Refer to the table found below to learn more about the PST of each province.


HST

Third, we have the Harmonized Sales Tax (HST). The HST was a result of the certain provinces (New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and Prince Edward Island) combining their PST with the Federal GST to form one single HST rate. Thus, all the provinces listed above only have HST to simplify their tax management program.




When to register for sales taxes in Canada?

According to The Government of Canada, as a Canadian business, you must register for sales tax accounts if both of the following situations apply to your business.

  1. You make taxable sales, leases, or other supplies in Canada.

  2. You are not a small supplier. A small supplier refers to a business whose revenue from worldwide taxable supplies in the span of a year was equal to or less than $30,000. Note that if you’re a small supplier, you have the option to register voluntarily for a GST/HST/PST account. That is, it is not mandatory for small suppliers to register for sales tax accounts, but there are certain advantages if you sign up, more on that later.


3 examples

Let’s break this down into three cases, to understand better when to register for sales tax accounts.


  1. The first scenario is when you’ve made more than $30,000 in a single calendar quarter, so in three months. Then, your effective date of registration for sales tax must be the day of the supply that made you exceed the $30,000 threshold in the quarter. You must begin charging sales taxes on your date of registration. You also need to charge sales tax on the sale that made you surpass the $30,000 threshold. You have 29 days from your effective date of resignation to register for sales tax accounts.

  2. The second scenario is when you’ve made more than $30,000 threshold over the previous four (or less) consecutive calendar quarters (but not in a single calendar quarter). This means that you’ve made more than $30,000 within the span of four to twelve months. In this case, you stop being a small supplier at the end of the month that made your revenues exceed $30,000. Then, your effective date of registration is the first day of the month after your revenue exceeded $30,000. For example, if you reached the $30,000 threshold in April, then May 1st is your effective date of registration. Like scenario 1, you must begin charging sales taxes on your date of registration and you have 29 days from your effective date of resignation to register for sales tax accounts.

  3. The third scenario is if you are a small supplier. Just to refresh your memory, this means that your total revenue was less than $30,000 over the span of a year. In this case, you do not have to register for the GST/HST. Registration for the GST/HST account is completely voluntary in this case. Until then, you do not charge your clients any taxes. Typically, your effective date of registration will be the day you request your sales tax accounts.


Please remember that registering for sales tax is only mandatory for the first two scenarios. To keep it short and sweet, you must register for the sales tax within 29 days of when you exceeded a $30,000 revenue.




Sales tax table for Canada

Province

GST

​PST (QST in Quebec)

HST

Alberta

5%

-

-

British Columbia

5%

7%

-

Manitoba

5%

7%

-

New Brunswick

​-

-

15%

Newfoundland and Labrador

-

-

15%

Northwest Territories

5%

-

-

Nova Scotia

-

-

15%

Nunavut

5%

-

-

Ontario

-

-

13%

Prince Edward Island

-

-

15%

Quebec

5%

9.975%

-

Saskatchewan

5%

6%

-

Yukon

5%

-

-

ReInvestWealth free accounting software. Supercharge your business finances with smart accounting tools. Simplify bookkeeping, automate tax filings, get advice based on cash flows, and more, all in an easy to use app.


Sales tax Refunds (ITC and ITR)

When you have registered for sales tax accounts, you’re eligible for sales tax refunds on your business purchases. And that means more money. And who doesn’t love getting back that hard earned cash? We know we do! There are two types of sales tax refunds: we have the input tax credits (ITC) for the GST/HST system and input tax refunds (ITR) for the QST system. Companies in Quebec will charge GST and QST and they will get ITC for the GST paid and ITR for the QST paid.


Claiming ITC allows GST/HST registrants to recover the GST/HST paid on purchases and expenses that are business related. The request to recover expenses must be tied to your business.


Common expenses to claim ITCs:

  • Business start-up costs

  • Fuel costs

  • Legal, accounting, and other professional fees

  • Maintenance and repairs

  • Office expenses

  • Rent

  • Cost of goods

  • And all other supplies that are taxable as discussed above


So how do you know if you are eligible to claim ITCs? If you check off all of the following boxes, you’re eligible!

  1. You purchase a taxable property or service that is used in your business activities.

  2. If your business was registered for GST/HST on the day of purchase.

  3. You paid the GST/HST for the good or service.

  4. You have enough proof to request the ITC. (Invoice, receipt, bill)


To claim ITCs, you must first calculate the amount you can claim. Calculating ITC is easiest when using financial software such as ReInvestWealth’s free accounting software.


For the QST system, we have input tax refunds (ITR). ITRs are similar to ITCs in the sense that you are able to get refunded for your business-related expenses on goods and services that you paid QST. Again, we recommend accounting software to help calculate both ITRs and ITCs.




Sales Tax Remittance (GST, HST & PST Collectible)

Sales tax remittance is simple. The taxes charged when a sale is made must be transferred to designated tax authorities on a periodic basis. The remittance process can be monthly, quarterly or annually. Most businesses have a quarterly sales tax filing period.


If you do not remit sales taxes on time, you can face penalties, interest and other consequences, so make sure to remit these payments when you should be! To help simplify this process, ReInvestWealth’s free accounting software will send you email reminders regarding tax remittance deadlines.




Should You Register As A Small Supplier?

Going back to the small supplier, you should register for sales taxes if your expenses are higher than your revenues (the case with most startups) because when you purchase taxable goods and services from other businesses, you will be able to get refunded for the taxes that you paid on your purchases.


If you are a small supplier getting your businesses off the ground, it is likely that you have more expenses than revenues in the early stages and thus be eligible for a net refund.




Adding sales tax account numbers to customer invoices

When you send an invoice to a customer, you want to make sure you add your sales tax account numbers. You need to include your sales tax account number when the customer purchased a taxable good or service and spent $30 or more. It is mandatory for you to inform your customers that you are charging them GST/HST/PST with the goods or services that they are buying. You need to put down the amount of GST/HST/PST the customer is being charged as well. An invoice is a bill that shows all the goods and services that you provided to the customer.




Verifying sales tax account numbers on purchase receipts

To check if a person or business is a GST/HST registrant, you can use the GST/HST Registry, a free resource provided by the Canada Revenue Agency. Once you open the GST/HST Registry, you can s