Goods and Services Tax (GST) / Harmonized Sales Tax (HST)
Most goods and services sold in Canada are subject to the Goods and Services Tax (GST) / Harmonized Sales Tax (HST), which is added to their final price. The GST/HST also applies to real property (e.g., land and buildings) and intangible personal property (e.g., intellectual property rights, admissions and digitized products downloaded over the internet).
Some Canadian provinces levy GST as part of a single Harmonized Sales Tax (HST), which combines GST with the provincial sales tax.
As a business in Canada (unless you are considered a small supplier), you must charge, collect and remit GST/HST, along with any other applicable sales taxes. You can also recover the GST/HST you spent on purchases used in commercial activities by claiming input tax credits (ITCs) on your returns.
When it comes to charging GST/HST and claiming refunds, the applicable rules are a common cause of confusion for entrepreneurs, says the Canada Revenue Agency (CRA). “GST/HST can become very complex, very quickly. Business owners are often surprised by the many rules for charging or recovering the tax.”
GST/HST can become very complex, very quickly. Business owners are often surprised by the many rules for charging or recovering the tax.
Canada Revenue Agency
How much is GST/HST?
The current GST rate in Canada is 5%. This is true in every province and territory, though certain provinces have combined GST with their provincial sales tax to make a single HST.
GST is charged separately (at 5%) from the provincial or territorial sales tax in British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan and the Yukon. It is the only sales tax charged in Alberta.
HST is 13% in Ontario and 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
Zero-rated and exempt supplies
GST/HST applies to most, but not all, goods and services sold in Canada. Zero-rated goods and services are taxable at the GST/HST rate of 0% across Canada and include:
- groceries
- agricultural products and most farm livestock
- most fishery products
- prescription drugs and certain medical devices
- feminine hygiene products
- exports
- many transportation services where the origin or destination is outside Canada
GST/HST does not apply to exempt supplies of goods and services. This means businesses do not charge GST/HST on these supplies and are generally not able to claim ITCs on purchases used to provide these supplies. Generally, a business cannot register for GST/HST if it provides only exempt supplies such as public transit, residential rent or medical care.
GST/HST on imports and exports
Because GST/HST is a sales tax in Canada, it generally applies to goods, services or intangible property imported into Canada but not to those exported from Canada. In addition, export-oriented businesses may be authorized to participate in certain programs that remove GST/HST from domestic purchases and importations. Additional information may be found at GST/HST on imports and exports - Canada.ca.
Who has to pay GST/HST?
Almost everyone buying a product, service, real property or intangible personal property sold in Canada must pay GST/HST except when buying zero-rated or exempt supplies.
Businesses risk leaving money on the table if they don’t practice diligent recordkeeping and develop a clear understanding of GST/HST rules. GST/HST is not just about obligations, but also entitlements such as ITCs, says the CRA. “Making sure you get what you’re entitled to takes planning and preparation.”
GST/HST is not just about obligations, but also entitlements. Making sure you get what you’re entitled to takes planning and preparation.
Canada Revenue Agency
What is an ITC?
ITCs allow businesses to recover GST/HST paid on purchases used to produce goods or services (including zero-rated supplies, but not exempt supplies). Businesses cannot claim ITCs on purchases of exempt supplies or from small suppliers that are not registered for the GST/HST, as no GST/HST is charged.
Only registered businesses (i.e., those with a valid business number with a GST/HST account) are eligible to claim ITCs, which increases the importance of registering your business.
Everything, from fuel costs and freight charges to commercial rent and telephone fees, is eligible for GST/HST recovery through ITCs, as long as you used that good, service or property for commercial activities and not to produce supplies that are exempt from the GST/HST. The CRA offers guidance on calculating ITCs, as well as a free Excise and GST/HST Rulings and Interpretations Service for any matters you’re not sure of.
Carefully recording your business spending—including specifying exact amounts for GST/HST—throughout the year makes it easier to complete your tax returns. It will also give you peace of mind if your file comes up for review. The more documentation you have, the better off you are when it comes to audits or questions of refunds by the authorities.
What is a GST/HST number?
A GST/HST account number is an alphanumeric code made up of your nine-digit business number, followed by RT 0001 (or a higher number if your company has multiple branches or divisions). You’ll use this number to file GST/HST returns, make remittances, and signal to customers and the government that you’re legitimately charging and remitting taxes.
If your total taxable revenue exceeds $30,000 in a single calendar quarter or over four consecutive calendar quarters, you must register your business for GST/HST and collect the tax on every sale on behalf of the Government of Canada. If you don’t cross that threshold, your business is considered a small supplier, meaning you do not need to register and charge GST/HST—and cannot claim ITCs.
As a business owner, you collect GST on behalf of the Government of Canada. Think of it like a trust account.
Canada Revenue Agency
How to get a GST/HST account number
The quickest way to apply for a GST/HST account number is through the CRA’s website. You can also call the business enquiries line (1-800-959-5525) or complete and submit a request form by mail or fax to a designated tax centre.
Businesses in Quebec must register through Revenu Québec, which administers GST in that province.
Charging and collecting GST/HST
For consumers, GST/HST is a simple concept; for businesses, it’s often more complex.
The challenge comes with identifying the right category for what you’re supplying: is it a good, a service, real property or intangible personal property? Place-of-supply rules determine the rate of GST/HST to charge, and these rules differ across categories. How you categorize your supply can influence the rate you charge customers.
Determining the category of a supply is not always straightforward. For example, imagine you run an engineering firm and are hired to design and build a motor. Are you offering your client a service (the design and manufacture of a motor) or an intangible personal property (the motor design and the right to reproduce it)?
Cases like these require a close analysis to ensure you’re charging the appropriate GST/HST rate per the place-of-supply rules. You could even provide supplies across multiple categories that will appear on the same invoice and will need to be charged at different rates.
The CRA’s free Excise and GST/HST Rulings and Interpretations Service can help resolve uncertainty about how supply should be categorized, which GST/HST rate you should charge and whether or not you can claim ITCs.
When charging GST/HST, you must inform customers that tax is being charged to their purchase and provide certain information about it.
Learn more about GST/HST
GST/HST has many rules that seem complex. To help you, the CRA offers a variety of resources related to GST/HST in Canada, including the guide RC4022, General Information for GST/HST Registrants, which is a good starting point, as well as toll-free telephone numbers for direct advice. Contact the CRA for more information and support.