If you run a business in Canada, then you know that you need to familiarize yourself with GST, HST and PST. Getting all of these different types of sales tax straight can be a bit of a challenge, especially when it comes to filing all the proper paperwork with the CRA. And what about when you're selling products to buyers outside of your province of business, or even outside of Canada? Read on to demystify how all of these sales taxes apply to your business, and how understanding them works to your company's advantage.
In case you're not familiar with the acronyms in the paragraph above, here's a quick rundown:
- GST: Goods and Services Tax. This tax is applicable to most goods and services bought and sold in Canada, and levied by the federal government.
- PST: Provincial Sales Tax. This sales tax varies from province to province, as the name suggests.
- HST: Harmonized Sales Tax. This is the combination of GST and PST into a single tax.
The tax (or taxes) from this list that you’ll need to pay will depend on the province in which you’re doing business. In addition to GST, you will need to deal with PST if your business is located in British Columbia, Saskatchewan, Manitoba or Quebec. All of the other provinces (except for Alberta) have adopted HST, while the territories (Yukon, Northwest Territories, and Nunavut) deal only with GST.
Deducting and Filing Sales Tax
If you’re charging GST or HST on your company’s goods and services, then the good news is that you can claim Input Tax Credits, or ITCs, on your business expenses. These are purchases that can reasonably be attributed to the running of your business. (Not sure whether the goods you supply are eligible for taxation? Check out the CRA’s list of GST/HST exempt supplies.) As long as you file correctly, ITCs allow you to recover some of the taxes your business pays on the goods and services it needs to keep running. There are limits, though: for example, if 50 percent of an expense is tax deductible, then only 50 percent of the GST/HST from that expense can be included when filing your ITCs.
Do you have the right Accounting Software?
In order to properly calculate your ITCs for filing with the CRA, you’re going to need to keep track of all of the GST and HST you pay during a given reporting period. (Note that GST/HST need to be tracked separately in your company’s accounting records.) Your first step is to register for a business number with the CRA, then register for a GST/HST account. If you’re bringing in revenues of at least $30,000 per year, then registration for a GST/HST account is mandatory, but it’s a good idea to register regardless of revenues so that you can still file for ITCs on any applicable business expenses.
For each reporting period, you’ll need to calculate how much of the GST/HST collected by your business will be remitted to the CRA (the net tax). To calculate the net tax, take the total amount of sales tax collected during the reporting period and then subtract the total amount of ITCs. If you’re left with a positive amount, then that is the amount you need to pay back (remit) to the federal government via your GST/HST tax return. GST/HST payments can be made by various methods, but make sure you respect the due dates laid out by the CRA. If the amount is negative, then you’re getting a tax refund!
Interprovincial and International Sales
It’s worthwhile to familiarize yourself with the sales taxes that apply in different provinces and territories, as special rules apply when you’re selling your product to a buyer located outside of your province of business. To find out which sales tax to apply to an out-of-province sale, you can refer to the CRA’s place of supply rules.
Selling to buyers located outside of Canada is bit of a different story. In these cases, you do not need to charge GST or HST but, depending on the buyer’s location, they may need to pay customs charges or import duties once the product arrives, or they may be subject to their own jurisdiction’s sales tax on the item. However, as a Canadian seller, you don’t need to concern yourself with calculating these charges.
Have questions for us about calculating sales tax, or filing your return with the CRA? We’re here to help! Drop us a line anytime at firstname.lastname@example.org.