Canadian GST compliance and rates

Canadian goods and services tax (GST) is a 5% value added tax that must be paid on most goods and services in Canada. The rules surrounding the application of GST in Canada cover a range of areas including:

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

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.

Canadian Federal GST is charged at 5%. This is combined in most Provinces with the local PST, which are set between 5% and 9%, to create a Harmonised Sales Tax (HST) rate.

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

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 having taxable supplies 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.

Canada defines a digital product as any product that’s stored, delivered, and used in an electronic format. This includes goods and services the customer receives and uses by downloading or streaming them, such as ebooks, music files, or cloud-based software (also known as intangible personal property. Books, vinyl records, and products you can hold are considered tangible personal property). Businesses should note that the terms ‘digital products’, ‘digital services’, ‘e-goods’, and ‘e-services’ are used interchangeably and refer to the same thing.

A non-resident business selling digital products in Canada must charge the 5% GST rate. As with tangible products, Canadian provinces that have their own local taxes (in addition to GST) will either combine the federal and provincial taxes and call it a harmonized sales tax (HST), or add on a provincial sales tax separately.

The sales threshold for digital businesses selling into Canada is CAD 30,000 during a 12-month period. Once this is exceeded, digital businesses must register for GST/HST. Like other types of businesses, digital sellers will then receive a GST/HST registration number.

Digital businesses must then charge, collect, and remit GST/HST at the correct rate on all sales to Canadian customers. Within all invoices, digital businesses should include their name and address, GST/HST number, invoice date and sequencing number, a description of the goods or services, the GST/HST rate applied to each item, and the final amount after tax is added.

Digital businesses are expected to file tax returns in Canada every quarter. Overseas businesses are not required to appoint a tax representative in Canada. However, they may use one to help simplify the registration and returns process and liaise with local tax authorities.

Certain provinces have requirements for digital businesses conducting commercial activity. These are outlined below:

Businesses selling digital products to customers in British Columbia that exceed the threshold of CAD 10,000 in a 12-month period must follow the rules regarding the consumption tax Provincial Sales Tax (PST). This includes registering for PST and getting a PST number, and charging, collecting, and filing returns.

Once registered for PST, businesses are expected to charge 7% PST on every sale to a British Columbian customer. However, charging PST isn’t necessary on B2B sales to customers with a PST number. In these instances, the buyer is expected to manage PST obligations via British Columbia’s reverse-charge mechanism.

Businesses must include the below information within their PST invoices:

• PST number
• Business’s name and address
• Buyer’s name and address
• Buyer’s PST number
• Invoice date
• Invoice sequencing number
• Amount and rate of PST applied to each item
• Final amount after PST is added
• Currency used

Businesses selling digital products to customers in Quebec that exceed the threshold of CAD 3,000 in a 12-month period must register for QST — the provincial sales tax in Quebec. Businesses will need to get a QST registration number to establish themselves within the Quebec tax system.

Once registered for QST, businesses are expected to charge 9.975% QST on every sale to a Quebec customer. However, charging QST isn’t necessary on B2B sales to customers with a PST number. Like in British Columbia, in these instances the buyer is expected to manage QST obligations via Quebec’s reverse-charge mechanism.

Businesses must include the below information within their QST invoices:

• QST number
• Business’s name and address
• Buyer’s name and address
• Buyer’s QST number
• Invoice date
• Invoice sequencing number
• Amount and rate of QST applied to each item
• Final amount after QST is added
• Currency used

Businesses selling digital products to customers in Saskatchewan must follow the rules regarding PST. Saskatchewan has a sales threshold for digital businesses of CAD 0. All digital businesses must register for, collect, and remit PST.

Once registered for PST, businesses are expected to charge 6% PST on every sale to customers in Saskatchewan. However, charging PST isn’t necessary on B2B sales to customers with a PST number. In these instances, the buyer is expected to manage PST obligations via Saskatchewan’s reverse-charge mechanism.

Businesses must include the below information within their PST invoices:

• PST number
• Business’s name and address
• Buyer’s name and address
• Buyer’s PST number
• Invoice date
• Invoice sequencing number
• Amount and rate of PST applied to each item
• Final amount after PST is added
• Currency used

Businesses selling digital products in Manitoba must register and follow the rules for Retail Sales Tax (RST). Manitoba does not have a sales registration threshold.

Once registered for RST, businesses are expected to charge 7% RST on B2C sales to customers in Manitoba. However, charging RST isn’t necessary on B2B sales to customers with an RST number. In these instances, the buyer is expected to manage RST obligations via Manitoba’s reverse-charge mechanism.

Businesses must include the below information within their PST invoices:

• RST number
• Business’s name and address
• Buyer’s name and address
• Buyer’s PST number
• Invoice date
• Invoice sequencing number
• Amount and rate of RST applied to each item
• Final amount after RST is added
• Currency used