As a small business owner in Canada, it’s essential to understand your responsibilities when collecting and remitting sales tax. The goods and services tax (GST) is a federal tax that applies to the sale of most goods and services in Canada, and registered businesses must collect and remit this tax on behalf of the government.
What is the GST and who is required to collect it?
The GST is a value-added tax that applies to the sale of goods and services in Canada. It is administered by the Canada Revenue Agency (CRA) and is currently set at a rate of 5%. Businesses that are registered for the GST are required to collect the tax on behalf of the government and remit it to the CRA.
If your business has annual taxable supplies that exceed $30,000, you are required to register for the GST. It’s important to note that this $30,000 threshold is not just limited to your sales within Canada. If you make sales to other countries, they can also count toward your annual taxable supplies. Once you are registered, you will be required to charge GST on the goods and services you sell, and you will also be able to claim input tax credits for the GST you pay on business expenses.
What is the GST rate and how do you calculate it?
The GST rate in Canada is currently 5%. If you are registered for the GST, you will need to charge this tax on your taxable goods and services. To calculate the GST on a sale, multiply the sale price by 5/105. For example, if you sell a product for $100, the GST would be $5 (100 x 5/105).
It is important to note that in some cases, you may also be required to collect provincial sales tax (PST) or harmonized sales tax (HST), depending on the province in which you are located.
What is PST and HST?
In addition to the GST, some provinces in Canada also have their own sales tax called provincial sales tax (PST) or harmonized sales tax (HST). The HST combines the GST with PST and is used in provinces where the GST and PST have been harmonized.
Below is a summary of the various sales tax system and sales tax rates across Canada.
| Region | Province | Tax System | Tax Rate |
| Atlantic | New Brunswick | HST | 15% |
| Newfoundland and Labrador | HST | 15% | |
| Nova Scotia | HST | 15% | |
| Prince Edward Island | HST | 15% | |
| Central Canada | Ontario | HST | 13% |
| Quebec | GST + QST | 14.975% | |
| Prairies | Alberta | GST | 5% |
| Manitoba | GST + PST | 12% | |
| Saskatchewan | GST + PST | 11% | |
| West Coast | British Columbia | GST + PST | 12% |
| North | Northwest Territories | GST | 5% |
| Nunavut | GST | 5% |
Exemptions and zero-rated items
It’s important to note that not all goods and services are taxable. There are certain exemptions and zero-rated items that are not subject to sales tax. For example, basic groceries, prescription drugs, and most medical devices are zero-rated, meaning you do not need to charge GST or HST. You can find a list of exemptions and zero-rated items on the CRA website.
Doing business outside of Canada
If you sell goods or services to customers outside of Canada, you are generally not required to collect GST/HST, provided they take delivery of the goods or services outside of Canada, at their own place. These are considered exported goods and services which are generally zero-rated which makes the rate 0%, meaning you do not charge foreign customers any GST/HST.
How do you report and remit the GST?
A business owner must keep good records of the GST collected and the GST paid on business expenses. You will need to report this information on your GST/HST return, which you will be required to file every quarter, or annually if you qualify as a small supplier.
To file your return, you must log in to the CRA’s My Business Account portal and follow the instructions. You will need to provide your total sales, total GST collected, and total GST paid on business expenses.
Collecting and remitting sales tax can seem daunting, but with proper planning and record-keeping, it is a manageable task for small business owners in Canada. By understanding your obligations and following the guidelines set out by the CRA, you can ensure that you comply with the GST laws and avoid potential penalties. Consider seeking professional advice if you have questions or are still determining your sales tax obligations.
