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