GST and HST rates by province: Why do they vary?

In Canada, the Goods and Services Tax (GST) is the federal tax added on to most commercial sales. In recent years, some provincial governments have remodelled their provincial sales taxes (PST) to combine the administration of the PST with the GST in order to create a Harmonized Sales Tax (HST). This, however, is not the case in all provinces, and because of the provincial taxes, HST rates vary from province to province.

All businesses engaged in commercial activity in Canada are required to collect GST or HST on their taxable sales and remit it to the Canada Revenue Agency (CRA). The only exemption is if you are a small supplier, meaning that you, along with any associated business, have taxable sales or “supplies” of less than $30,000 in the last four quarters.

Collecting and remitting GST and HST payments

Place of supply rules

The province in which your sales are made will affect the GST/HST rate you need to charge your customers. The CRA’s place of supply rules help you determine which province’s rate is applicable to your sale.

Many people assume that the province in which their business operates is the province where the supply is made, and that they should therefore charge the rate in effect for that province. This is true in many cases, particularly if your customers are also in the same province. However, if you sell to customers outside of your province, it is important to consider the nature of the supply, as the place of supply may be the address of the customer, depending on what you are selling. For example, if a publication is purchased from a bricks-and-mortar store in Ontario by a resident of Manitoba, Ontario tax rates will apply to the sale. However, if the same publication is ordered online and shipped to the same customer in Manitoba, Manitoba tax rates will apply.

Input tax credits

Although you have to collect GST/HST on all of your taxable sales, the amount that you remit to the government when you file your GST/HST tax return is net of any input tax credits (ITCs) for amounts of GST/HST that you have paid on your purchases. There are some restrictions, however, on the amount of ITCs that you can claim for certain types of purchases. For example, you can only deduct 50% of the GST/HST that is paid on meals and entertainment expenses.

Using the quick method

The quick method is available to most businesses that have taxable supplies in four consecutive quarters out of the previous five quarters of less than $400,000.

Using this method significantly decreases the amount of work needed to account the GST/HST. If you have a business where you do not pay very much GST/HST on your purchases, it can also be financially beneficial.

Under the quick method, you do not include the full amount of the GST/HST that you collect or most types of ITCs in the calculations on how much to remit to the CRA. Instead, you multiply the revenues that you have collected (including the GST/HST) by a lower percentage. The theory is that the two amounts (reduction from the amount of GST/HST charged and the amount of ITCs paid) will essentially be the same and the net amount of tax that you will remit will be about the same.

For those using the quick method, an election must be filed with the CRA prior to the beginning of the period in which you wish to use the method.

Your accountant can provide details on different aspects of the GST/HST. Every year, accounting firm Welch LLP publishes updated information in its annual Tax Facts and Figures guide (see section 4).