When you buy a good or service, you will often see an additional fee over the initial purchase price. Those added fees are infamously known as sales tax, which benefit both the business and the government, but are a bane of the end consumer. If you’re the owner of a Canadian business, you need to understand how sales tax works and how it applies to your business, after all sales taxes and business go hand in hand.
Overview
Being a business owner is hard, and sales taxes really do not help make things easier. In this piece we will be covering everything about Canadian sales taxes, from what it is, to when to register for it with tax agencies, to sales tax remittance, to how to keep track of taxes, and more!
This article is meant for Canadian business owners, who want to learn about sales tax and its importance. We will discuss the sales tax for each province (yes, each province has their own sales tax) so that you can find the information that is most applicable to you.
This will be an in-depth article covering everything you need to know about sales taxes in Canada. We have a shorter sales taxes in Canada article for those looking for a quick recap.
Table of Contents
General Information
Rates, Refunds and Remittance
Additional Information
National vs. International Sales Tax
How Accounting Software Helps Manage Sales Tax
What is sales tax and why does it exist?
A tax is a mandatory fee individuals and corporations must pay to government entities. We have mentioned the term “sales tax” multiple times already, so you might be wondering, even though you vaguely understand what it is, exactly what it means. A sales tax is a tax imposed on the sale of most goods and services.
Most goods and services supplied in or imported into Canada are subject to sales tax however there are 3 types of supplies to know.
Taxable supply (most good and services are subject to sales tax)
Business tools
Laptops & computers
Office supplies
Phone & Internet bill
Restaurant meals
Gasoline
Sales and leases of automobiles
Hotel accommodation
Legal and accounting services
Commercial Rent
Repairs
Taxi or commercial ride-sharing services
And much more
Zero-rated supply (good and services subject to 0% sales tax)
Sales of certain goods or services exported outside Canada
Agricultural products (ex: grain, raw wool, and dried tobacco leaves)
Most farm livestock and fishery products
Prescription drugs and drug-dispensing services
Feminine hygiene products
Basic groceries (ex: milk, bread, and vegetables)
And more
Exempt supply (good and services not subject to sales tax)
Health, education, childcare and legal-aid services
Government services
Financial services
And more
Federal and Provincial sales tax
GST
First, we have the Goods and Services Tax (GST), which is the Federal sales tax applied to most goods and services in Canada.
PST (QST in Quebec)
Second, we have the Provincial Sales Tax (PST). Each province chooses the PST rate in their jurisdiction. Refer to the table found below to learn more about the PST of each province.
HST
Third, we have the Harmonized Sales Tax (HST). The HST was a result of the certain provinces (New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and Prince Edward Island) combining their PST with the Federal GST to form one single HST rate. Thus, all the provinces listed above only have HST to simplify their tax management program.
When to register for sales taxes in Canada?
According to The Government of Canada, as a Canadian business, you must register for sales tax accounts if both of the following situations apply to your business.
You make taxable sales, leases, or other supplies in Canada.
You are not a small supplier. A small supplier refers to a business whose revenue from worldwide taxable supplies in the span of a year was equal to or less than $30,000. Note that if you’re a small supplier, you have the option to register voluntarily for a GST/HST/PST account. That is, it is not mandatory for small suppliers to register for sales tax accounts, but there are certain advantages if you sign up, more on that later.
3 examples
Let’s break this down into three cases, to understand better when to register for sales tax accounts.
The first scenario is when you’ve made more than $30,000 in a single calendar quarter, so in three months. Then, your effective date of registration for sales tax must be the day of the supply that made you exceed the $30,000 threshold in the quarter. You must begin charging sales taxes on your date of registration. You also need to charge sales tax on the sale that made you surpass the $30,000 threshold. You have 29 days from your effective date of resignation to register for sales tax accounts.
The second scenario is when you’ve made more than $30,000 threshold over the previous four (or less) consecutive calendar quarters (but not in a single calendar quarter). This means that you’ve made more than $30,000 within the span of four to twelve months. In this case, you stop being a small supplier at the end of the month that made your revenues exceed $30,000. Then, your effective date of registration is the first day of the month after your revenue exceeded $30,000. For example, if you reached the $30,000 threshold in April, then May 1st is your effective date of registration. Like scenario 1, you must begin charging sales taxes on your date of registration and you have 29 days from your effective date of resignation to register for sales tax accounts.
The third scenario is if you are a small supplier. Just to refresh your memory, this means that your total revenue was less than $30,000 over the span of a year. In this case, you do not have to register for the GST/HST. Registration for the GST/HST account is completely voluntary in this case. Until then, you do not charge your clients any taxes. Typically, your effective date of registration will be the day you request your sales tax accounts.
Please remember that registering for sales tax is only mandatory for the first two scenarios. To keep it short and sweet, you must register for the sales tax within 29 days of when you exceeded a $30,000 revenue.
Sales tax table for Canada
Province | GST | PST (QST in Quebec) | HST |
|---|---|---|---|
Alberta | 5% | - | - |
British Columbia | 5% | 7% | - |
Manitoba | 5% | 7% | - |
New Brunswick | - | - | 15% |
Newfoundland and Labrador | - | - | 15% |
Northwest Territories | 5% | - | - |
Nova Scotia | - | - | 15% |
Nunavut | 5% | - | - |
Ontario | - | - | 13% |
Prince Edward Island | - | - | 15% |
Quebec | 5% | 9.975% | - |
Saskatchewan | 5% | 6% | - |
Yukon | 5% | - | - |
Sales tax Refunds (ITC and ITR)
When you have registered for sales tax accounts, you’re eligible for sales tax refunds on your business purchases. And that means more money. And who doesn’t love getting back that hard earned cash? We know we do! There are two types of sales tax refunds: we have the input tax credits (ITC) for the GST/HST system and input tax refunds (ITR) for the QST system. Companies in Quebec will charge GST and QST and they will get ITC for the GST paid and ITR for the QST paid.
Claiming ITC allows GST/HST registrants to recover the GST/HST paid on purchases and expenses that are business related. The request to recover expenses must be tied to your business.
Common expenses to claim ITCs:
Business start-up costs
Fuel costs
Legal, accounting, and other professional fees
Maintenance and repairs
Office expenses
Rent
Cost of goods
And all other supplies that are taxable as discussed above
So how do you know if you are eligible to claim ITCs? If you check off all of the following boxes, you’re eligible!
You purchase a taxable property or service that is used in your business activities.
If your business was registered for GST/HST on the day of purchase.
You paid the GST/HST for the good or service.
You have enough proof to request the ITC. (Invoice, receipt, bill)
To claim ITCs, you must first calculate the amount you can claim. Calculating ITC is easiest when using financial software such as ReInvestWealth’s free accounting software.
For the QST system, we have input tax refunds (ITR). ITRs are similar to ITCs in the sense that you are able to get refunded for your business-related expenses on goods and services that you paid QST. Again, we recommend accounting software to help calculate both ITRs and ITCs.
Sales Tax Remittance (GST, HST & PST Collectible)
Sales tax remittance is simple. The taxes charged when a sale is made must be transferred to designated tax authorities on a periodic basis. The remittance process can be monthly, quarterly or annually. Most businesses have a quarterly sales tax filing period.
If you do not remit sales taxes on time, you can face penalties, interest and other consequences, so make sure to remit these payments when you should be! To help simplify this process, ReInvestWealth’s free accounting software will send you email reminders regarding tax remittance deadlines.
Should You Register As A Small Supplier?
Going back to the small supplier, you should register for sales taxes if your expenses are higher than your revenues (the case with most startups) because when you purchase taxable goods and services from other businesses, you will be able to get refunded for the taxes that you paid on your purchases.
If you are a small supplier getting your businesses off the ground, it is likely that you have more expenses than revenues in the early stages and thus be eligible for a net refund.
Adding sales tax account numbers to customer invoices
When you send an invoice to a customer, you want to make sure you add your sales tax account numbers. You need to include your sales tax account number when the customer purchased a taxable good or service and spent $30 or more. It is mandatory for you to inform your customers that you are charging them GST/HST/PST with the goods or services that they are buying. You need to put down the amount of GST/HST/PST the customer is being charged as well. An invoice is a bill that shows all the goods and services that you provided to the customer.
Verifying sales tax account numbers on purchase receipts
To check if a person or business is a GST/HST registrant, you can use the GST/HST Registry, a free resource provided by the Canada Revenue Agency. Once you open the GST/HST Registry, you can start verifying. First, enter the first nine numbers of the GST/HST account number. Exclude letters and make sure you only enter the first nine. If you are unable to find this number, contact the business. If you cannot get their number through them, knock on the Canada Revenue Agency's door and call their business enquiries line at 1-800-959-5525 to confirm with them that the business is a GST/HST registrant. Next, after entering the first nine numbers, enter the business’ legal name. You should be able to find this name on the invoice or on a sign in at the business’ location. If you are unable to identify the name, contact the business to learn what name they gave to the Canada Revenue Agency when they registered. Finally, you need to enter the date on the purchase receipt.
Sales tax rules for selling in Canadian provinces
The sales tax rule is basically that you should be charging the amount of tax of the province where the goods or services are delivered. For example, if I have a store in Calgary, Alberta, then I should be charging 5% GST when someone buys from my store, because the sales tax rate in Alberta is 5% and they only charge GST. Another example would be if I’m shipping my products from Calgary to a customer in Ontario. In this case, since my sale is delivered in Ontario, I would charge 13% HST because the sales tax rate in Ontario is 13% and they use HST. Note that in the second example, I am not charging the Alberta sales tax even though the product is coming from Alberta.
Note to readers there are GST/HST special cases.
Sales tax rules for selling globally
Rules for sales taxes are a bit different when you sell within Canada and when you sell globally, outside of the Canadian borders. More sales tax rules – who would not be excited to learn about this ever-growing list of information! When you sell to a customer outside of Canada, that is called exportation. Most exports are zero-rated. This means that even if your goods or services would be taxed if they were purchased in a Canadian province or territory, there is a 0% tax, so no charge, when you provide it outside of Canada.
Instead of charging taxes in Canada, you may be required to charge taxes in the location of your sale and remit the taxes in that location. A helpful tip is that you generally do not need to charge foreign taxes unless selling more than $100,000 in sales revenue in a specific foreign state. The exact requirements for charging foreign taxes are beyond the scope of this article but businesses selling to the United States can find more information by visiting the American Institute of Certified Public Accountants.
Registering with Canadian tax agencies
After doing some research, you may discover that you need to charge sales taxes in multiple regions. In this case, you need to be registered with the corresponding Canadian tax agency to that region. If applicable, you might need to register federally, in British Columbia, Manitoba, Quebec, and Saskatchewan.
To learn which provinces to register with, you can read the section Sales tax rules for selling in Canadian provinces which is found earlier in this article. Remember that you must register for a tax first, before you start charging it.
When to file sales tax returns for Canadian corporations?
GST/HST must be filed with the CRA and PST/QST is filed with the respective province.
If you report your taxes every month or every four months, you must file your sales tax return and remit the amount by the end of the month following your reporting period.
If you file your taxes once a year, so annually, you have 3 months following the year end to file and remit taxes but you may still be required to make four installment payments.
There are some exceptions for the sales tax remittance, but more businesses will fall in the categories described above. Read more about Canadian Corporation Tax Administration.
If you have questions about the sales tax process, schedule a free consultation with ReInvestWealth.
How to easily keep track of sales taxes
We know that keeping track of sales taxes can be a hassle. That is why we are here to help you and make your life easier. With the aid of the free accounting software at ReInvestWealth, we can make sales taxes a breeze for you.
Without accounting software, you would need to keep track of sales taxes by storing boxes and boxes of receipts and invoices. Eventually, those piles would take over your office. And it is not too environmentally friendly.When it comes time to report these taxes, you would need to dig through these boxes to calculate your business’ total expenses and total revenues during the fiscal year. This process is time-consuming and can easily escalate to big problems.
Our software allows you to keep track of your business’ financial information on your phone or other electronic devices. Storing your business’ information digitally is called cloud accounting and just like the name cloud suggests, it makes accounting easy, breezy, and light for you.
Cloud accounting will facilitate keeping track of sales taxes for Canadian small businesses and startups. ReInvestWealth’s accounting software allows your business to grow by saving you time. Our accounting software is completely free and takes care of the small and tedious tasks and puts your business in the hands of accounting experts. There are so many reasons why cloud accounting is the way to go – learn more about how accounting software makes tax returns easy.
Other benefits of accounting software
The benefits of accounting software do not end at making sales taxes easy to track. Automating your accounting is fast and you can follow this tutorial on ReInvestWealth to finish the automation in six quick steps and then boom, you are set!
Once you upgrade to online accounting, you will quickly notice all the benefits that come with accounting software. A few advantages are that it helps you avoid legal issues, as a program will be dealing with your financial information, and it maximizes security by storing your information in enterprise-grade security. There are too many advantages to list here, so check out Why Accounting Software Is Key For Canadian Small Businesses: Top 10 Benefits.
Conclusion
Sales taxes are a complex topic that every Canadian small business owner, entrepreneur, and startup founders must understand! Staying on top of sales taxes is taxing – pun intended – but very important! As a business owner, you must keep track of your taxes when you sell a good or service or when you purchase something and pay tax.
Remember that it is mandatory to register for a GST/HST account once your business makes more than $30,000 in a year. You can get refunded on your business related purchases, but also need to remit your sales taxes. There are many layers, details, and exceptions to sales taxes, which makes them difficult. We understand that sales taxes are intimidating, that is why ReInvestWealth is here to help. Book a free consultation with a CPA today.
Using our accounting software will make the entire process easier for you. You can avoid the struggles that come with sales taxes and being a business owner through ReInvestWealth’s online accounting. If you are still unsure about anything sales taxes related, book an appointment to meet an online accountant.
Say goodbye to your sales taxes worries and say hello to easy breezy cloud accounting with ReInvestWealth.
Written by Catherine Tao
Edited by Behdad Karimi Dermeni, CPA