If you are engaged in selling goods or services to Canadian customers, you are likely grappling with two essential questions:
1. Do I need to apply Canada sales taxes to this item?
2. What is the applicable sales tax rate?
Similar to the sales tax system in the United States, the answers to these questions hinge on the specific location. Canada employs a Goods and Services Tax (GST) that is applicable to all purchases made nationwide.
Additionally, nine out of the ten provinces in Canada have their own distinct additional Canada sales taxes, which must be considered for sales transactions within those specific regions. If this seems intricate, fear not. We will guide you through the fundamental aspects of the Goods and Services Tax (GST) system in Canada.
Canada Sales Taxes: GST, HST, PST
How much is Canada sales tax? The specific tax rate depends on the province. Here are the current rates:
- GST: 5%
- HST: 15%, 13% in Ontario
- PST: 6% Saskatchewan, 7% British Columbia
- RST: 7%
- QST: 9.975%
Federal Goods and Services Tax (GST)
The 5% GST is a federal tax that is uniformly applicable throughout the entirety of Canada.
Provincial Sales Tax (PST)
Four provinces—British Columbia, Manitoba, Quebec, and Saskatchewan—impose their own Provincial Sales Tax (PST), distinct from the federal GST. In Quebec, this tax is referred to as the Quebec Sales Tax (QST). PST is levied on the price of a good before the addition of GST. Rates fluctuate across provinces, ranging from 6% to 9.975%.
Harmonized Sales Tax (HST)
New Brunswick, Newfoundland, Nova Scotia, Ontario, and Prince Edward Island administer the Harmonized Sales Tax (HST). Businesses in these provinces collect and remit a consolidated tax to the Canada Revenue Agency, which subsequently distributes the appropriate shares to the respective provinces. The HST rate stands at 13% in Ontario and 15% in the remaining provinces.
Notably, Alberta, Nunavut, Yukon, and the Northwest Territories do not impose any sales tax. Consequently, businesses conducting transactions with buyers in these jurisdictions solely collect the 5% GST.
What is sales tax ID Canada?
For corporations, the unique nine-digit identifier for tax purposes is the Business Number (BN), issued by the Canada Revenue Agency. Corporations domiciled in Canada bear income tax reporting responsibilities and are mandated to possess a BN.
How Does Sales Tax Work In Canada?
As previously mentioned, Canada employs a Goods and Services Tax (GST) instead of a traditional sales tax. Comparable to a sales tax, the GST is a value-added tax applicable to goods and services purchased throughout Canada. Beyond the GST, specific provinces impose additional sales taxes known as Provincial Sales Tax (PST), which may assume different names depending on the province.
Five Canadian provinces—Ontario, Newfoundland and Labrador, Nova Scotia, Prince Edward Island, and New Brunswick—do not apply GST and PST independently. Instead, they enforce a consolidated tax termed Harmonized Sales Tax (HST).
In Quebec, the PST is referred to as Quebec Sales Tax (QST), while in Manitoba, it is known as Retail Sales Tax (RST). In most scenarios, businesses will levy the GST along with any applicable PST designated for the respective province. Saskatchewan and British Columbia use the term PST for their additional sales tax.
Alberta stands as the sole province without a PST or HST implementation. Consequently, sellers in Alberta only need to consider the GST in their transactions.
Non-Resident Vendors Must Register and Collect Tax
Effective from July 1, 2021, non-resident vendors with annual sales surpassing $30,000 CAD for taxable goods in Canada are likely obligated to register for collecting the Goods and Services Tax/Harmonized Sales Tax (GST/HST).
It can be noted that most supplies of property, including real property, and services are taxable for GST/HST purposes. This encompasses diverse transactions such as the sale and lease of automobiles, legal and accounting services, publications (books, magazines, and periodicals), hotel accommodations, and various other goods and services.
Canada designates certain supplies as “zero-rated,” subject to a 0% tax rate, signifying that while they are considered taxable, Parliament has opted not to apply tax to them. Examples of such zero-rated supplies include basic groceries (milk, bread, vegetables), agricultural products (wheat, grain, raw wool, dried tobacco leaves), prescription drugs, and specific medical devices like hearing aids and artificial teeth.
Accurate tracking of zero-rated item sales is crucial for businesses, as these sales contribute to determining whether a business exceeds the $30,000 threshold in annual sales. Businesses with less than $30,000 in annual sales are exempt from collecting the federal GST.
For companies surpassing $30,000 in annual sales, mandatory registration for GST collection is required; however, zero-rated items remain exempt from GST charges.
Canada also outlines a category of services exempt from GST/HST, encompassing various educational services (e.g., tutoring) and most services provided by financial institutions.
For a more comprehensive understanding of GST/HST requirements, the Canadian government provides detailed information.
Provinces Can Also Require Non-Resident Vendors To Collect Tax
Provinces imposing their own Provincial Sales Tax (PST) have established regulations mandating non-resident vendors to register for tax collection. The specific requirements for some provinces are outlined below:
- British Columbia
Businesses are obligated to remit PST when importing or dispatching goods into B.C., or upon receiving the delivery of goods within the province for use, irrespective of whether their business operations are conducted in B.C. or not.
- Manitoba
Referred to as the “retail sales tax,” Manitoba requires vendors selling goods or services within the province to register with the provincial Taxation Division and collect the Retail Sales Tax (RST). Small businesses with annual taxable sales below $10,000 CAD are exempt from mandatory registration and RST collection.
3. Quebec
As of 2019, foreign suppliers or operators of digital platforms distributing property or services may be compelled to register for collecting the Quebec Sales Tax (QST) if their sales exceed $30,000 CAD over a 12-month period.
4. Saskatchewan
Businesses located outside Saskatchewan conducting retail sales in the province must obtain licensing and remit the PST. This requirement extends to operators of electronic distribution platforms, online accommodation platforms, and marketplace facilitators.
These regulations ensure compliance with provincial tax laws and contribute to a standardized approach to tax collection across various jurisdictions.
Final Thoughts
For businesses engaging in online transactions with customers in Canada, it is crucial to be cognizant of the Canada sales taxes and implications associated with selling products over the Internet.
FAQs
How does sales tax work in Canada?
Sales tax in Canada operates at both the federal and provincial levels. The federal tax is the Goods and Services Tax (GST), while the provincial tax varies by province, commonly referred to as the Provincial Sales Tax (PST) or the Harmonized Sales Tax (HST). Businesses may need to collect and remit both federal and provincial taxes based on the location of the transaction.
What is GST and PST tax in Canada?
GST (Goods and Services Tax) is the federal tax applied across the country, currently set at 5%. PST (Provincial Sales Tax) is imposed separately from the federal tax by certain provinces. In contrast, others have adopted the HST (Harmonized Sales Tax), which combines the federal and provincial taxes into a single rate.
Is Canada sales tax included in the price?
In Canada, sales tax is typically not included in the displayed price. The listed price is often exclusive of taxes, and applicable taxes are added at the point of sale.
What items are not taxed in Canada?
Certain items in Canada fall under the category of “zero-rated supplies,” meaning they are taxable but at a 0% rate. Examples include basic groceries (milk, bread, vegetables), certain agricultural products, prescription drugs, and specific medical devices. These items are considered taxable, but Parliament has opted not to apply Canada sales taxes to them.
Additionally, some services, such as educational services and most services provided by financial institutions, are exempt from GST/HST.