Financial Management

Understanding GST/PST/HST taxes

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09/02/2018 – By Jason Smale

When do I register for a GST/HST account?

According to the CRA rules you must register for a GST/HST account if both of the following apply

  • You make taxable sales, leases, or other supplies in Canada
  • You are not a small supplier (a small supplier is someone who earns less than $30,000 in the previous 4 consecutive quarters.)

The odd guys out from the rules above are self-employed taxi or commercial ride-share drivers, whom must register for a GST/HST account even if they qualify as a small supplier.

Voluntary registration of a GST/HST account is always an option for a small business owner. A few reasons may exist as to why you would register for a GST/HST account even though you may still qualify for the status of a small supplier. Below we’ll point out a few

  • You deal with businesses whom you have concern would know you did not do at least $30,000 in sales in the past four quarters, and may have concern that these businesses or individuals may choose not to do business with you out of concern that you are not a well-established business.
  • We will recommend that some clients register for a GST/HST account even if they don’t anticipate exceeding the small supplier status in the first year, but anticipate they will in their second year of operations and they require large capital investments to start their business.

You must register and charge the GST/HST tax on the sale that causes you exceed the $30,000 small supplier threshold, whether that is done within a single month, a series of months, or after four consecutive quarters. You must also be aware that you’ll need to register for the GST/HST program account within 29 days of the sale that causes you to exceed the small supplier threshold.

Exempt and zero-rated goods and services

There are some clearly defined categories of goods and services that fall under the tax exempt or zero-rate goods and services policy.

Zero-rated goods and services include
  • Basic groceries (meat, fish, poultry, cereals, dairy, vegetables, etc.)
  • Farm equipment (tractors, seeders, planters, etc.)
  • Farm livestock sold for human consumption
  • Prescription drugs
  • Medical devices
  • Freight to/from Canada
  • Feminine hygiene products

Zero-rated supplies differ from exempt supplies in that they are actually taxable supplies where the rate of GST/HST is 0 percent. You’ll be able to claim input tax credits on the GST/HST paid in the process of making the supplies. The easy way to understand zero-rated supplies is that they are normally attached to products that are considered basic needs of life.

Tax exempt goods and services include
  • Used residential housing
  • Residential rental accommodations
  • Medical and Dental services
  • Issuing insurance policies
  • Educational services
  • Goods and services provided by charities
  • Financial services (banking fees, loans, etc.)
  • Legal aid services
  • Day-care services for children 14 or younger assuming the service is not provided 24 hours per day.

Just as the name implies, exempt supplies are exempt from the GST/HST program. If you provide exempt supplies you will not need to charge GST/HST on these supplies, but you will also not be able to claim input tax credits for the GST/HST paid in the process of making these supplies. If you have any questions about supplies that fall under the category of exempt supplies, they are listed under schedule 5 of the Excise Tax Act.

From the perspective of the customer there is no difference in the tax treatment of goods and services that are zero-rated vs those that are exempt.

  • With reference to zero-rated goods and services, you don’t charge or collect GST/HST, but you can still claim ITC’s for them on your GST/HST return.
  • With reference to exempt goods and services, you also do not collect GST/HST, but you cannot claim Input Tax Credits against these sales.

Input Tax Credits

As mentioned above, there are circumstances under which we would advise clients to enroll in the GST/HST account before exceeding the small supplier status. One scenario is, when capital investments are required to start the business. The reason being, as a small business owner when you sell goods or services you charge your customers the applicable tax rates. The taxable portion of your sales transaction needs to be remitted to the CRA, however when you make purchases for your business and are registered for the GST/HST program you can use the amount you’ve paid in GST/HST as an input tax credit. You can file a claim to recover the GST/HST you’ve spent in your business during the reporting period. If this amount exceeds the amount you’ve collected from sales to your customers you would be entitled to a refund.

What taxes are applicable to my customers

As a small business owner, you need to be aware that there are 3 sales taxes to deal with while engaging in business with your customers.

These taxes are:

• GST (Goods and Services Tax)
• PST (Provincial Sales Tax)
• HST (Harmonized Sales Tax), which combines the GST and PST

The following is how each province charges the respective GST/PST/HST sales tax for qualifying goods and services.

Province GST PST HST
YES/NO
HST or
Total
Newfoundland and Labrador 5 10 YES 15%
Prince Edward Island 5 10 YES 15%
Nova Scotia 5 10 YES 15%
New Brunswick 5 10 YES 15%
Quebec 5 9.975 NO 14.975%
Ontario 5 8 YES 13%
Manitoba 5 8 NO 13%
Saskatchewan 5 6 NO 11%
Alberta 5 0 NO 5%
British Columbia 5 7 NO 12%
Yukon, Nunavut, NWT 5 0 NO 5%

Out of province sales

The CRA has a specific set of rules that pertain to goods or services sold to customers in other provinces. These are referred to as the Place of Supply rules. If you sell and ship or deliver taxable goods or services to a customer residing outside of your home province, you will typically charge that customer based on the applicable tax rates for their province.

First Nations (Status Indian) Customers

When dealing with customers who supply you with evidence of their status card you will charge them for the 5 percent GST rate when purchases are made off of the reservation and the goods or services purchased are normally considered HST applicable. The rules governing this transaction can be found under the Status Indian point-of-sale exemption.
If goods or services are rendered on the reservation, then the purchase is considered to be delivered to a reservation and the transaction is GST/HST exempt.

There are circumstances under which the point-of-sale exemption will not apply to First Nations, Native Americans with the Indian Status card.

  • When the purchases are eligible for input tax credits for the HST payable, as the purchase is being made for purposes of commercial activities.
  • in cases where the supply is already relieved of HST because it is zero-rated, or exempt, or
  • when the property is a designated item that qualifies for an Ontario point-of-sale rebate for the Ontario component of the HST

If you would like more information on the applicable tax treatments for sales involving Status Indians, Indian bands, or both unincorporated and incorporated band-empowered entities click here.