Charging the correct Canada sales tax for the goods or services you sell is one of your biggest responsibilities as a small business owner. Because tax legislation is unique to each province and territory, you may have to collect and remit different types of sales tax depending on where your business operates.
While you should consult a tax specialist about your specific obligations, this article will provide an overview of the different types of sales tax in Canada and some key steps for managing them.
3 Types of Canada sales tax
There are three types of sales tax in Canada: Goods and Services Tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). Your business location and sales territory will determine which tax—or combination of taxes—you may need to charge.
GST is a tax levied on goods and services by the federal government. Depending on where your business is registered, you’ll either charge GST as a separate tax at a rate of 5% or as a portion of the HST.
PST is a tax levied on goods and services by the individual provinces. Alternatively known as RST (Retail Sales Tax) in Manitoba—and QST (Quebec Sales Tax) in Quebec—PST tax rates vary by province.
HST is a combined sales tax that participating provinces use in place of separate federal and provincial amounts. Unless you’re operating in a province with HST however, your business will charge GST and PST separately.
If you were doing business in BC, for example, you’d charge 7% PST and/or 5% GST depending on which goods or services you sell. In Ontario, meanwhile, you’d charge 13% HST only on taxable goods or services, which consists of an 8% provincial portion and a 5% federal portion.
Here are the Canada sales tax rates by province and territory as of 2022:
|Province / Territory
|Type of Sales Tax
|Total Tax Rate
|GST + PST
|GST + RST
|Newfoundland and Labrador
|Prince Edward Island
|GST + QST
|GST + PST
A note about the Input Tax Credit (ITC)
The ITC reimburses you for GST/HST paid on certain expenses (like delivery costs, office expenses, and travel, for example) by allowing you to claim it as a deduction against your GST/HST payable.
GST/HST rates on different types of supplies
In the context of sales tax, the term supply refers to the provision of property or a service in any way – including a sale, transfer, barter, exchange, license, rental, lease, gift, or disposition.
The supplies provided by your business will determine whether or not you’ll need to collect and remit GST/HST. All goods and services fall into one of three categories.
1. Taxable supplies
2. Zero-rated supplies
Some taxable supplies—like basic grocery items and prescription drugs, for example—are considered essential. So while they’re still subject to GST/HST (and you can still claim an ITC if you provide them), tax is charged at a rate of 0%.
3. Exempt supplies
You won’t charge GST/HST on tax-exempt supplies. Examples include insurance policies and most health, medical, dental, childcare, and financial institution services.
5 Steps to managing your Canada sales tax
These steps will help you get ready to collect and remit sales tax in Canada.
1. Determine whether to register for sales tax
Your business must register for a GST/HST account (and charge GST/HST on all taxable supplies) unless:
- You qualify as a small supplier (if the value of taxable supplies you provide annually is less than $30,000, registering is optional)
- You provide exempt supplies only
If your goods or services are provincially taxable where your business operates, you may also have to register for PST.
In BC, for example, you must register for PST unless you’re a small seller, a wholesaler who doesn’t make retail sales, or you provide non-taxable or exempt supplies only.
2. Determine which tax rates to use
The provinces your customers are in—not the location of your business—determine which tax rates you’ll use.
If, for example, your business is in BC but you provide taxable supplies to customers in Ontario, you’d apply Ontario sales tax rates to those supplies. You don’t need to collect Canada sales tax from consumers outside the country.
3. Determine your GST/HST filing frequency
How often you file and remit GST/HST is determined by the value of taxable supplies you provide annually.
- If you provide taxable supplies worth more than $6M, you must file monthly
- If you provide taxable supplies worth between $1.5M and $6M, you must file quarterly
- If you provide taxable supplies worth less than $1.5M, you can file annually
These values don’t include sales made outside of Canada.
4. Use accounting software to track sales tax
Some small business owners overspend during the year, then struggle to remit the sales taxes they owe. Tracking and setting aside the sales tax you collect will ensure sufficient cash flow when payment is due.
You can use cloud accounting software like Xero or QuickBooks Online to easily track:
- How much tax you’ve collected
- Which expenses can be claimed as ITCs
- How much tax you need to remit
You can even set different sales tax rates for all your supplies and sales tax groups for each province.
5. Remit sales tax to the proper authorities
If your business operates in a province with HST, you’ll need to file HST with the Canada Revenue Agency (CRA).
If your business operates in a province without HST, you’ll need to file GST with the Canada Revenue Agency (CRA) and PST with the respective provincial tax authority (in BC, it’s the Ministry of Finance).
In most cases, your GST/HST remittance will be due at the same time you file your tax return. You’ll need to remit the tax owing on all sales amounts in your return—even if you’ve yet to collect cash from your customers.
Stay on top of your taxes with up-to-date books
As a Canadian business owner, it’s important to understand your sales tax obligations so you can avoid financial penalties for collecting or remitting the wrong tax amounts at the wrong time.
Keeping timely and accurate books is the best way to ensure your sales tax is properly tracked.
A good bookkeeper can keep your sales data and expenses organized, provide ongoing visibility into your tax and ITC claim amounts, monitor your deadlines, and even remit sales tax when it’s due. Need a hand tracking of your Canada sales tax? Enkel can help!