Sales Tax Canada: What Are GST, HST, and PST?
Understanding the sales tax system in Canada can be challenging, given the different types of taxes that apply across the provinces and territories - they work quite differently to US sales tax. In this blog post, we’ll unravel the intricacies of the Goods and Services Tax (GST), Harmonized Sales Tax (HST), and Provincial Sales Tax (PST) to help you better navigate Canada’s tax landscape.
GST Canada: Goods and Services Tax
The Goods and Services Tax (GST) is a federal sales tax in Canada that applies to the sale of most goods and services. Introduced in 1991, this value-added tax is levied at each stage of the production and distribution chain. The GST is collected by businesses and remitted to the Canada Revenue Agency (CRA).
What is GST?
GST is a multi-stage tax that applies to the consumption of goods and services in Canada. The current GST rate is 5%, and it is applicable across the country, except in provinces that have adopted the Harmonized Sales Tax (HST). This tax is designed to be borne by the end consumer, with businesses acting as intermediaries in the collection process.
Who pays GST?
Ultimately, GST Canada is paid by consumers who purchase goods and services. Businesses are responsible for collecting the tax at the point of sale and remitting it to the government. This means that while businesses handle the administrative aspect of GST, the actual cost is passed on to consumers.
HST Canada: Harmonized Sales Tax
The Harmonized Sales Tax (HST) is a combination of the federal GST and the provincial sales tax (PST). This blended tax is applied in certain provinces to streamline the sales tax process and reduce administrative burdens for businesses.
What is HST?
HST is implemented in provinces that have agreed to harmonize their provincial sales tax with the federal GST. The HST rate varies by province, as each province sets its own rate. For example, in Ontario, the HST rate is 13%, whereas in Nova Scotia, it is 15%.
The provinces that have adopted HST include:
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
- Ontario
- Prince Edward Island
Benefits of HST
The adoption of HST aims to simplify the sales tax system by reducing the number of different taxes businesses must manage. By combining the GST and the PST, the HST helps to streamline tax administration and compliance, making it easier for businesses to operate across provincial borders.
PST Canada: Provincial Sales Tax
The Provincial Sales Tax (PST) is a tax levied by individual provinces on the sale of goods and services within their jurisdiction. Unlike GST and HST, the PST is administered separately by each province that imposes it.
What is PST?
PST is a consumption tax that applies to certain goods and services. The PST rate varies by province and is not harmonized with the GST. Provinces that levy a separate PST include British Columbia, Saskatchewan, and Manitoba. For example, British Columbia has a PST rate of 7%, while Saskatchewan’s PST rate is 6%.
PST exemptions
Each province sets its own rules regarding exemptions and the application of PST. For example, certain essential items such as groceries and prescription medications may be exempt from PST in some provinces. Consumers and businesses need to be aware of these exemptions to ensure they are complying with provincial tax laws.
Canadian GST, PST, and HST
The Canadian sales tax system involves different types of taxes that can apply simultaneously or separately, depending on the province. Here’s a breakdown of how GST, PST, and HST interact:
- GST: A federal tax of 5% that applies to most goods and services across Canada.
- PST: A provincial tax that varies by province and is administered separately from the GST.
- HST: A combined tax that merges the GST with the PST in participating provinces.
For instance, if you purchase a product in Ontario, you will pay the HST rate of 13%. In contrast, if you make a purchase in British Columbia, you will pay the GST rate of 5% plus the PST rate of 7%, resulting in a total sales tax of 12%.
Charging GST, HST, and PST
Understanding when to charge GST, HST, and PST is crucial for businesses operating in Canada. Here are the key scenarios:
Goods and Services Tax
Businesses must charge GST if they are registered for GST and make taxable sales, leases, or other supplies in Canada. A business must register for GST if its total taxable revenues exceed C$30,000 over four consecutive calendar quarters. Once registered, businesses must charge GST on all taxable supplies, except for those specifically exempted or zero-rated.
Harmonized Sales Tax
Businesses operating in HST provinces (New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island) must charge HST on taxable supplies. The obligation to charge HST follows similar rules to GST registration. If your business exceeds the C$30,000 threshold, you must register for HST and charge it on all applicable sales.
Provincial Sales Tax
PST requirements vary significantly by province. Businesses must register to collect PST in any province where they have a physical presence or conduct substantial business activities. The registration threshold and specific rules vary by province. For example, in British Columbia, businesses must register and charge PST if they sell or lease taxable goods, software, or services in the province.
Responsibilities of businesses
Businesses operating in Canada must navigate the complexities of collecting and remitting these various sales taxes. This includes understanding the different rates and rules that apply in each province where they do business. Failure to comply with these tax laws can result in penalties and interest charges.
Businesses should also be aware of input tax credits (ITCs), which allow them to recover the GST or HST they pay on business-related purchases. This system helps to ensure that the tax burden ultimately falls on the final consumer rather than on businesses throughout the supply chain.
Impact on e-commerce businesses
E-commerce businesses face unique challenges when it comes to complying with GST, HST, and PST regulations, especially as online sales continue to grow. Here are some key considerations:
Nexus and registration
E-commerce businesses must determine if they have a "nexus" or significant presence in a province to establish whether they need to register for PST. Nexus can be created by having a physical location, employees, or substantial sales in the province. For GST and HST, any business exceeding the $30,000 revenue threshold must register and collect the appropriate taxes.
Destination-based taxation
In e-commerce, sales taxes are generally based on the destination of the goods or services. This means that businesses need to apply the correct GST, HST, or PST rates based on the buyer’s location. For example, an e-commerce business in Alberta selling to a customer in Ontario would charge the Ontario HST rate of 13%.
Digital goods and services
The taxation of digital goods and services, such as e-books, software, and streaming services, also varies by province. Some provinces apply PST to digital products, while others do not. Additionally, digital services sold to Canadian consumers by non-resident suppliers are subject to GST/HST, requiring foreign companies to register and remit these taxes.
Conclusion
Navigating the complexities of Canadian sales taxes can be challenging, but staying informed about the GST rate, HST rate, and PST rate in the province where you do business can help you better understand your tax obligations and make more informed purchasing decisions.
By understanding the nuances of these taxes, businesses can ensure compliance and take advantage of available tax credits. The interplay between GST, HST, and PST shapes the economic landscape in Canada, impacting prices, business operations, and government revenues.
Do you need help with your Canadian sales tax compliance? Book a free call with one of our tax experts to find bespoke solutions for your business, optimize your tax costs, and reach millions of new potential customers.
Frequently Asked Questions
What is the difference between GST, HST, and PST?
GST is a federal tax applied across Canada at a rate of 5%. HST is a combined tax merging GST with PST, applied in certain provinces with varying rates. PST is a provincial tax administered separately by each province that imposes it.
Which provinces use HST?
Provinces that use HST include New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island.
Do all provinces have PST?
No, not all provinces have PST. Some provinces use HST instead. Provinces like British Columbia, Saskatchewan, and Manitoba have their own PST.
When do businesses need to register for GST, HST, and PST?
Businesses must register for GST if their total taxable revenues exceed C$30,000 over four consecutive quarters. Similar rules apply for HST in HST provinces. PST registration requirements vary by province, typically based on physical presence or substantial business activities.
