Canadian GST, PST, HST, QST

Canada operates a range of goods and services tax (GST), which is a combination of federal and provincial taxes. The rules for GST broadly follow the European Union (EU) VAT model.

GST is a 5% value added tax that must be paid on most goods and services in Canada, and is administered by the Canada Revenue Agency (CRA).

The Canadian government introduced GST in 1991 to replace a (hidden) manufacturers’ sales tax (MST). GST is often combined with provincial sales tax (PST) into a harmonized sales tax (HST).

The rules surrounding the application of GST in Canada cover a range of areas including:

• Invoice requirements
• Foreign currency treatment and rates
• Expenses that may be recovered against GST liabilities
• Relief for bad debts
• Fines and penalties

Provinces that operate a PST include British Columbia, Manitoba, and Saskatchewan. Quebec’s provincial tax is known as Quebec Sales Tax (QST). These taxes are combined with state GST on taxable sales, with GST calculated on the cost plus PST. The rates for PST in each province are set between 5% and 9%, to create an HST rate.

Canadian GST is levied on supplies of most goods or services, including the sales of new housing, sales and rentals of commercial real property, and the sales and leases of automobiles and car repairs. GST also applies to soft drinks, confectionery, clothing and footwear, taxi and ride-sharing services, hotel accommodation, barber and hair services, and legal and accounting services.

There are some exceptions or ‘zero-rated’ sales. These include basic groceries, prescription medication, and some transportation and medical devices. Certain exports of goods and services are also exempt, including print books and print scholarly journals.

Before businesses can collect GST, they must register with the relevant and local tax authority.

Non-resident businesses in Canada must register for GST if they’re providing taxable supplies in Canada — this includes zero-rated supplies (unless the business qualifies as a ‘small supplier’ by making taxable sales of less than CAD 30,000 in a single quarter).

Businesses must also register if they provide admissions to events such as entertainment or seminars, or host conventions where more than a quarter of attendees are Canadian residents.

Non-resident digital businesses must register for GST if their revenue exceeds CAD 30,000 over any 12-month period. A simplified GST/HST registration procedure is available for such businesses. If qualified for a simplified registration procedure, a business does not have to provide a security deposit to the tax authority that’s usually required from non-residents who register for GST/HST. Within the simplified process, GST/HST can also be remitted on a quarterly basis instead of a varying frequency as dictated by a business’s turnover (when not using the simplified process).

Before businesses can register for a GST/HST account, they must get a business number (BN), which will act as an identifier when dealing with Canadian tax authorities. Businesses can use the Business Registration Online (BRO) service to set up their BN number.

When registration is complete, businesses will receive a 15-digit registration number, which must be retained and provided when requested by Canadian tax authorities or Canada Revenue Agency.

Businesses that are GST registered in Canada must submit periodic GST returns. The frequency depends on the annual turnover of the business:

• Monthly – over CAD 6 million
• Quarterly – CAD 1.5 million to CAD 6 million
• Annually – below CAD 1.5 million

GST returns are due by the end of the following calendar month. Businesses required to file an annual return must do so within three months of the year end.

Filings are electronic only for any business with annual turnover exceeding CAD 1.5 million. Any GST or harmonized sales tax (HST) is paid by electronic transfer simultaneously to the filing. There is the provision to pay quarterly installments for businesses on annual returns.