For business owners, freelancers, and even consumers in Canada, navigating sales taxes can feel like a maze. Two common terms you'll come across are GST (Goods and Services Tax) and HST (Harmonized Sales Tax). While they serve similar purposes, they apply in different ways depending on where you are in the country. Let’s break it down.
What Is GST?
GST stands for the federal Goods and Services Tax, a 5% tax applied to most goods and services sold in Canada. It’s a value-added tax (VAT) collected by businesses and remitted to the government.
If you’re in a province or territory without a harmonized sales tax system (HST), businesses charge GST along with any applicable provincial sales tax (PST).
What Is HST?
HST stands for Harmonized Sales Tax, a combination of the GST and the provincial sales tax (PST) into a single, blended tax. This system simplifies the process for both businesses and consumers in participating provinces.
The federal government collects HST, which is then shared with the participating provinces. HST rates vary depending on the province.
Key Differences Between GST and HST
Feature | GST (Goods & Services Tax) | HST (Harmonized Sales Tax) |
Applicability | Nationwide | Only in participating provinces |
Rate | 5% | Varies (e.g., 13% in Ontario, 15% in Nova Scotia) |
Provincial Component | Not included | Includes provincial portion |
Participating Provinces | Quebec, BC, Alberta, Manitoba, N.T., Nunavut, Saskatchewan, Yukon. | Ontario, Nova Scotia, New Brunswick, Prince Edward Island, and Newfoundland and Labrador |
How It Affects Your Business
If you operate in a GST-only province/territory: You’ll charge GST (5%) and may need to handle PST separately, depending on the province.
If you operate in an HST province: You’ll charge the harmonized rate. This streamlines reporting because you only need to manage one tax
Why Does This Matter?
Understanding whether to charge GST or HST is crucial for proper tax compliance and avoiding penalties. Businesses must:
Register for a GST/HST number if their revenue exceeds $30,000 in a year.
Know the applicable tax rate in their province or where the goods/services are delivered.
File regular GST/HST returns to remit taxes collected.
Conclusion
Understanding the differences between GST and HST can help you manage your taxes effectively and ensure compliance. Accounting softwares like ReInvestWealth can simplify this process, helping you calculate, track, and e-file your sales tax accurately with just a few clicks.
Frequently Asked Questions
Can I Cancel My GST/HST Registration If My Business Closes?
Yes, you can cancel your GST/HST registration if your business closes. You must notify the Canada Revenue Agency (CRA) of the closure and the effective date of the closure. The CRA will update its records accordingly.
How Often Do I Need to File GST/HST Returns?
The filing frequency for GST/HST returns depends on the total annual taxable supplies of your business. Businesses may be required to file monthly, quarterly, or annually.
What Are the Penalties for Non-Compliance with GST/HST Regulations?
Non-compliance with GST/HST regulations can result in penalties and interests imposed by the Canada Revenue Agency (CRA). Penalties may vary depending on the nature and severity of the non-compliance, but they can include fines, interest charges, and other consequences outlined by the CRA.
Do I Need to Register for GST/HST as a Sole Proprietorship?
As a sole proprietorship in Canada, you may need to register for GST/HST depending on your revenue. If your taxable supplies exceed $30,000 in a consecutive 12-month period, you must register. It is essential to monitor your revenue closely and register timely to comply with the regulations and avoid penalties.
Which provinces apply HST?
Ontario (13%)
New Brunswick (15%)
Newfoundland and Labrador (15%)
Nova Scotia (15%)
Prince Edward Island (15%)
Which provinces apply GST and PST?
Below provinces apply 5% GST plus the below PST:
Alberta (No Provincial Sales Tax)
British Columbia (7% PST)
Manitoba (7% PST)
Northwest Territories (No Provincial Sales Tax)
Nunavut (No Provincial Sales Tax)
Quebec (9.975% QST)
Saskatchewan (6% PST)
Yukon (No Provincial Sales Tax)