Overview of Canada Sales Taxes

Canadian Sales Tax Structure

 

The Canadian sales tax structure is comprised of two separate taxes and a third tax which is a blend of the first two taxes. Both taxes are administered by a Provincial (State) and Federal government agency each responsible for collection of their respective tax assessments. In the case of the blended tax the Provincial (State) agency collects the Federal component on behalf of the Federal agency and remits that portion directly to the Federal government.

 

1.     Federal Sales Tax or GST (Goods & Services Tax)

2.     Provincial (State) RST (Retail Sales Tax) formerly known as PST (Provincial Sales Tax)

3.     Blended Federal and Provincial (State) Tax HST (Harmonized Sales Tax)

 

Goods and Services Sale Tax (GST)

 

This tax is administered at the Federal level and is charged against all purchases for either goods or services for both retail and wholesale purchases at a rate of 5% nationally. Businesses who used to be exempt from paying any Federal taxes must now pay the GST on all business related purchases but may deduct the amount of their GST taxes paid out for all business related purchases against the amount of GST they have collected from the sales of their goods or services remitting this difference quarterly directly to the Federal Government. For accounting purposes and ease of calculating this difference, the GST is shown as a separate line item on all invoices and must flow through the general ledger as both an asset (taxes paid out but claimed back) and a liability (taxes charged and remitted).

 

No one person or business is exempt from this tax with the exception of the following short list.

 

1.     Provincial (State) run businesses, corporations or provincial (State) government agencies.

2.     Farming operations or Family Farms possessing a Federal Farm Number

3.     Indigenous First Nation Aboriginal people possessing a Federal Treaty (Band) number

 

Retail Sales Tax (RST) formerly Provincial Sales Tax (PST)

 

This tax is administered and the Provincial (State) level and is billed against all purchases for only goods and not services (labor) at a rate determined by each individual Province (State). Some Provinces (States) have legislated certain essential items (such as food and children’s clothing) as tax exempt but otherwise this tax applies to all purchases. This rate varies significantly across the country from 0% in Alberta to 10% in Nova Scotia (see Chart below).

 

                                                                                                                                                                     

Province (State)	Tax Type	Provincial Rate (%)	Total Tax Rate (%)
British     Columbia	GST   + PST	7	12
Alberta	GST	0	5
Saskatchewan	GST   + PST	5	10
Manitoba	GST   + RST	8	13
Ontario	HST	8	13
Quebec	GST   + QST	9.975	14.975
Prince     Edward Island	HST	9	14
Nova     Scotia	HST	10	15
New     Brunswick	HST	8	13
Newfoundland and Labrador	HST	8	13
Nunavut	GST	0	5
Yukon	GST	0	5

 

When billed out as a separately collected tax each Provincial (State) tax is only charged those individuals or businesses that reside in that province. The tax is also not charged for any purchases made by a business either wholesale, retail or manufacturer if the item being purchased is for resale, wrought into the manufacture or used in the packaging of a product intended for resale. Any business claiming this exemption must possess a registered Provincial (State) RST exempt number. When this tax exempt number is used by a customer against a purchase their RST number must appear on the suppliers invoice.

 

Harmonized Sales Tax (HST)

 

This tax is a blended tax comprised of the first two taxes described above. It is administered at the Provincial (State) level where the Provincial share is split from the total collected and the Province remits the Federal portion directly to the Federal tax agency. This eliminates businesses from the hassle of remitting separate tax collections but does now taxes all purchases with the provincial tax component eliminating the Provincial (State) tax exempt status for most businesses residing in those provinces that have adopted the harmonized tax. The Harmonized Sales Tax simplifies the accounting process by combining the two taxes into a single tax. Businesses can still deduct HST paid out against HST collected from sales so the need for an asset tax account and liability tax account within the G/L is still required.

Last updated: 5/20/2014