Sales Taxes-Canada

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Introduction

There are two sales taxes in Canada: GST/HST is run by the Federal government and PST by the Provincial governments.

Note that most prices in stores are shown before the addition of sales taxes.


GST/HST

Consumers

GST/HST is like VAT in the UK.

  • Supplies of goods and services are either exempt (typically basic foods, banking, insurance, medical, education and some housing services) or taxable (everything else).
  • Taxable supplies of goods or services are taxed based on the place of supply.
  • From July 1, 2010 the rates are 15% (Nova Scotia), 13% (Ontario, New Brunswick and Newfoundland and Labrador), 12% (BC), 5% (rest of Canada), or 0% (out of Canada).

Suppliers

  • You need to register for GST/HST if your total taxable sales (at whatever rate) exceed $30,000 in any rolling 4 quarter year.
  • Obviously, that condition is satisfied as soon as taxable sales exceed $30,000 in any one quarter.
  • Generally, there is an advantage in registering, as it lowers your business costs.
  • The amount you remit to the government is the difference between the amount of GST/HST you charge your customers and the amount you pay on the supplies and services you purchase for your business.
  • If your business is to the UK for example (taxable at 0%) you will be eligible for a refund of the GST/HST you have paid.
  • Once you are registered you must charge GST/HST to customers for all taxable supplies in Canada. This is not a problem. You just add it to your sales invoices – Canadians expect to pay it.
  • But to the newly arrived British expat, it can be a nasty shock to discover that GST/HST is not included in the price tag, as VAT is in the UK.

PST

Consumers

  • Saskatchewan, Manitoba, and PEI have Provincial sales taxes.
  • Quebec has its own value added sales tax.
  • The rates vary between 5% and 10%.
  • Nova Scotia, New Brunswick, Newfoundland and Labrador, Ontario and BC have no PST. They share HST with the Federal government.
  • Alberta has no PST.
  • The Territories (Yukon, Northwest Territories, and Nunavut) have no PST.
  • PST is run by the Provincial governments and operates very differently from GST. You need to do your own research for your province. However, the following is an outline of the general way PST is administered.

Exemtpions

  • Like GST, some goods and services are exempt and most are taxable. The distinction between exempt and taxable services is different from GST. This can be a complex area and needs careful analysis.
  • As an example, the supply of labour is exempt. If an IT person is contracted to write 1,000 lines of custom code for one customer, this will likely be a supply of labour and therefore an exempt supply.
  • However, if the same person writes software that can be used by more than one customer, this will be a taxable sale.


How PST is levied

  • PST is a tax paid by the final consumer of goods and services.
  • A manufacturer does not pay PST on its raw materials, but it does pay PST on consumed items like office supplies.
  • The manufacturer does not charge PST to a wholesaler, a wholesaler does not charge PST to a retailer, so long as the wholesaler or retailer have a PST exemption number from the Ministry of Finance.
  • The retailer does charge PST to its customers.
  • Businesses do not charge their provinces' PST to out-of-province customers.
  • However it is becoming more common for retail businesses with a national scope to collect PST on behalf of their customers' Province.
  • Anyone in business has the responsibility to charge the right amount of PST.
  • They also have a duty to pay PST on any supply they have acquired on which they should have paid PST, but didn’t.
  • For example, a furniture manufacturer will not pay PST on lumber as it is a raw material. However, if that lumber is used to make a desk for the front office then the manufacturer has become the final consumer of the wood and must self-assess PST on the value of lumber used.
  • Similar rules apply if you buy supplies from out of Province.

Farmers

  • Where it gets really complicated is in farming.
  • There is a whole list of products that farmers can buy, exempt from PST and another equally long list of things not exempt.
  • Farm vehicles and certain off road recreational vehicles are exempt from PST on fuel (with the right paperwork), so can purchase marked fuel free of tax from some gas stations.