As a business owner, it's important to know that your company doesn't pay sales tax. It's always the end consumer buying a product or service that is responsible for paying taxes. Essentially, individuals always pay sales tax.
"But wait!", you say. Then why does my company have to pay or collect sales tax?
Sales Tax Refund (ITC - Input Tax Credit & ITR - Input Tax Refund)
Okay, it's true. Your company does technically pay taxes on purchases, but the government will refund those taxes. Since your business is not the end consumer, you're entitled to a refund and can reclaim the taxes you paid on the purchases used to conduct business. These reclaims are called Input Tax Credits for GST/HST and Input Tax Refunds for QST.
Sales Tax Remittance (Also known as GST, HST, PST, QST)
The opposite is true for taxes collected from customers. You're responsible to remit them to the government.
"What if my customers are also businesses?" In this case, you must still charge taxes and remit them to the government. Your corporate client will be responsible to ask for a refund from the government since they are also not the end consumer.
When do I need a sales tax account?
In Canada, you need to sign up for a a sales tax account if your business revenue is more than $30k per year. Having a sales tax account is optional if revenues are less than $30k per year, but still recommended since small companies generally have more expenses than revenues, thus can reclaim cash from filing sales tax returns.
What if I sell Canada wide?
You must register and charge the sales tax rates in the location of your sale.
For example, If you ship a product to a client in Ontario, you must charge 13% HST.
If a client makes a purchase from your store in Quebec, you must charge GST / QST.
It can get a bit overwhelming if you sell across Canada, since you will need multiple sales tax accounts. The good news is that most provinces either use GST or HST and the registration process is combined in one application. There are exceptions for QST in Quebec and PST in BC, Manitoba and Saskatchewan.
Alberta | GST |
British Columbia | GST + PST |
Manitoba | GST + PST |
New Brunswick | HST |
Newfoundland and Labrador | HST |
Northwest Territories | GST |
Nova Scotia | HST |
Nunavut | GST |
Ontario | HST |
Prince Edward Island | HST |
Quebec | GST + QST |
Saskatchewan | GST + PST |
Yukon | GST |
What if I sell worldwide?
There are many many rules for charging sales tax worldwide. This guide will briefly touch on the most common situations for businesses incorporated in Canada.
Selling worldwide with no physical presence outside of Canada. If you don't have a physical presence outside of Canada (such as employees or offices) then you don't need to charge sales tax on your sales outside of Canada. There are exceptions. If you have more than $100k in sales or 200 transactions in any state/province outside of Canada, there is a good chance that sales tax will be required in that location.
Selling worldwide with physical presence outside of Canada. If you have sales in a location outside of Canada and also have a physical presence in that location (employees or offices), then you will automatically have to register for taxes in that location.
How do I properly record sales taxes? If your transaction has sales tax, then you must record taxes in your books. If your transaction does not have sales tax, then don't record taxes in your books. It's that simple.
Don't forget to;
Include your company's sales tax account numbers on invoices sent to clients.
Make sure the sales tax account numbers of your suppliers are on each invoice sent to your business.
Use accounting software, such as ReInvestWealth, to easily track sales taxes in your books.
How do I register for a sales tax account and file a sales tax return?
Schedule a free call with an accountant at ReInvestWealth. We will be happy to help!