From major retailers and service providers to contractors and gig-economy side-hustlers, organizations that carry on taxable business in Canada are required to charge, collect and remit the Canadian Goods and Services Tax (GST) and/or the Harmonized Sales Tax in their province on their products and services.
While that might sound straightforward enough, like other tax obligations, it can be anything but. And whether by mistake or ignorance, failing to comply can lead to an audit and potential penalties. So not only is it best practice to consult professional tax accountants for expert advice on reducing your tax bills and to save you time spent calculating and filling your returns, but they can also help you avoid stressful and costly mistakes.
Please keep in mind that the following is broad and general information, and, like other tips for taxes, is a helpful start, but not a substitute for personal, professional advice.
What is the GST Tax in Canada?
The GST is a value-added 5% tax applied to most goods and services sold in Canada. It’s a federal tax, so it must be charged in every province and territory.
Several provinces also charge a Provincial Sales Tax (PST) on goods and services bought and/or sold within their borders. However, several of these provinces combine the two tax rates into a single Harmonized Sales Tax (HST). Others either do not charge a provincial sales tax (like Alberta) or continue charging their PST and GST separately (like Saskatchewan and Manitoba.)
How Much is GST in Ontario?
At the time of this writing, Ontario participates in the HST program and has a current sales tax of 13% – an 8% provincial tax rate added to the 5% GST. You can see the different tax rates, which provinces are participating in the HST program, etc., on this page.
Who is Required to Charge, Collect and Remit GST?
Most businesses and service providers must charge GST on their sales; there are exceptions, however.
To begin with, if your worldwide revenues (and those of your associates’) were less than $30,000 on taxable supplies in three consecutive months or in the previous 4 quarters, you are considered a small supplier and are not required to charge GST, register for a GST number or file a GST return.
Once you pass that threshold within the given timeframes on revenues from taxable supplies, you are required to fulfil your GST obligations. Most goods and services are considered taxable supplies, including:
- Sales and rentals of commercial real property
- Car repairs
- Legal and accounting services
However, if you are a GST registrant, you are allowed to claim input tax credits (ITCs) to recover GST and HST you paid on purchases and expenses incurred as part of your business selling taxable supplies (more on that below.)
There are exemptions and special rules regarding GST collection and remittance, depending on the type of goods or services you provide.
Exemptions and Special Rules for GST/HST Requirements
Generally speaking, there are two other categories of supplies aside from taxable supplies: Zero-rated and Exempt.
If you are a supplier of zero-rated supplies, you must still register for a GST account (if you are not a small supplier), however, because the supplies you sell are not taxed, the GST/HST is applied at 0%. Examples of zero-rated supplies include:
- Basic groceries like milk, bread, meats and produce
- Prescription drugs and drug-dispensing services
- Specific medical devices
- Feminine hygiene products
As a zero-rated supplier, however, you are still allowed to claim ITCs for the GST/HST you paid on taxable supplies during the course of your business operations.
Other suppliers who provide exempt supplies do not have to register, charge or collect GST/HST. Examples of exempt supplies include:
- Long-term rentals of residential housing
- Most health, medical and dental services done by a licensed professional
- Child care services
- Legal aid
- Educational services
- Most services and properties issued by charities and public institutions
For the most part, exempt suppliers cannot claim ITCs.
Creating a CRA GST/HST Account and Collecting the GST/HST
- Your effective date of registration (i.e., when you passed the $30,000 threshold)
- Your business’s fiscal year
- Total annual revenue
- Personal and business information (such as the business name, type of business, address, etc.)
You can also register voluntarily while you are still considered a small supplier if you feel that your revenues from taxable supplies will pass the threshold and/or you prefer to be on the safe side.
Charging and Collecting GST/HST
To start charging and collecting GST/HST, if you know the type and place of your supplies, you can use the CRA’s GST/HST calculator to determine the amount of GST/HST to charge.
When you start charging GST/HST, you have to let your customers know that the GST/HST is either included in the bill or will be added later, the tax rate being charged and your GST/HST number. This information must be clearly stated and visible on your invoice, contract, or posted on a sign.
Remitting the Goods and Services/Harmonized Sales Tax (GST/HST Returns)
Your GST/HST filing period determines your filing deadline and whether you must file monthly, quarterly, annually, etc. Failing to file by your deadline can result in interest and penalties.
Most businesses can use either the regular method or the quick method to calculate the GST/HST they must remit. In a nutshell, the regular method involves calculating the amount of GST/HST you were required to charge and subtracting ITCs for GST/HST paid or payable.
If your business is permanently established in Canada and your annual worldwide revenue on taxable supplies is less than $400,000, you can use the quick method to calculate your GST/HST owing by multiplying the total amount of your revenues (including GST/HST) by the quick method tax rate that applies to you (they are generally less than the GST/HST rates.)
You’ll find complete instructions for filing a GST/HST return here.
Failure to Comply and GST Audits
Like other behaviours that trigger a CRA audit, not reporting or underreporting a GST/HST return can land you in hot water.
Just as they do with income tax returns, the CRA conducts GST audits where you must show receipts, paperwork, etc., and explain discrepancies on your GST/HST return or face fines and penalties.