Understand Sales Tax In 3 Simple Steps
July 25, 2022 Andrew AdolphAudits
In Canada, dealing with sales tax is part of running a small business.
Types Of Sales Tax
If you sell goods and services to Canadians, there’s a tax for that. Recently, there have been a lot of changes to sales tax legislation in Canada and in some of the provinces. Here is a brief rundown of sales taxes in Canada.
GST Sales Tax
GST/HST At the Federal (nationwide) level is the Goods and Services Tax (GST) and for the provinces that have harmonized their sales tax with the national one, those provinces have the Harmonized Sales Tax HST). The base rate for GST is 5% across the land. But the provinces that have harmonized choose their own tax rate and layer it on top of the 5% GST. Ontario does this for a combined HST rate of 13%, as do the Atlantic provinces, where the HST rate is 15%.
Some provinces (BC, Saskatchewan, Manitoba, and Quebec) did not harmonize and have their own separate sales taxes. People operating in these provinces file both a GST return to the Feds and a PST return to that province. The province of Alberta and the three northern territories did not harmonize and don’t have their own sales tax. The important thing to remember is that GST/HST are the same tax, but rates vary depending on the province. PST (Provincial Sales Tax)
PST is a province tax that is collected separately from the GST. The provincial tax In Manitoba, the provincial tax is called Retail Sales Tax (RST), and Quebec charges Quebec Sales Tax (QST). Sales tax rates by province Use this tool to understand the sales tax rates by province. There are three steps to collecting and remitting sales tax. Not only do you have to know the amount you need to charge, but you must also know how to remit it. There’s a three-step process that I’ll break down now, so you understand how it works.
Any person involved in commercial activities in Canada is required to register, collect, report, and remit sales tax. This also includes corporations. Small providers are exempt Businesses with worldwide yearly revenue (before expenses) of less than $30,000 are not required to be registered but can do so voluntarily if they are involved in commercial activity. Use the most recent four calendars to determine if you are above or below $30,000 in revenue. Some sales are taxable at 0% Some goods are considered essentials and thus aren’t taxed. These include items such as bread, milk, prescription drug, and certain medical devices.
It doesn’t matter where your business is. Tax rates will depend on which province your customers are in. Let’s say your business is in BC, but your client is in Ontario. You’ll have to pay the tax rates of Ontario. With that being said, this does not apply to international customers as long as you are delivering what you are selling outside of Canada. Exports are considered taxable at 0%.
Remit to the CRA You’ll need to send this money (‘remit’ is the technical term) to the CRA. A lot of small businesses make the mistake of overspending and are unable to pay their taxes. Keep close tabs on how much money you have collected as sales tax and set it aside for tax return time. To remit tax, you must register for an account. Fortunately, there is one registration process for both the GST and the HST, but if you are doing business in BC, Saskatchewan, Manitoba, or Quebec, you may need to register separately for them
Depending on your revenue level, you may potentially have five different sales tax agencies to report to if you do business with Canada. You can remit electronically, through your bank in Canada, or by mail. Payments of $50,000 or more need to be paid electronically or at your financial institution. The CRA has more details about filing periods and steps to remit. If you’ve done business in British Columbia, Saskatchewan, Manitoba, or Quebec, you’ll need to register with the applicable provincial government. Check the links for easy access to the registration processes. Once you’ve registered, you will be assigned a reporting period. Based on your revenues, you will need to report and remit tax monthly, quarterly or yearly.
It is not just Canada. Many USA states are now requiring companies who sell to its people to be registered to collect their state sales tax. And they all operate in silos. Deal with each state separately. It can be a little overwhelming. Follow these three steps, do some research on the specific tax rules for your business, and you’ll be calculating, charging, and remitting sales tax with confidence. And when it’s time to submit your tax return, all of your paperwork will be in perfect order. If you’d like to talk to someone about your sales tax situation and whether you are doing it right, I offer a free consultation by filling out a very quick form. Or you can call me directly if you like, at 604-204-6173. Also don’t get forget to check out my blog for additional tax resources.
Andrew Adolph is a CPA and former CRA auditor with 25 Years of experience. He helps businesses to not par any more in sales taxs than the law says they must and acts as an advocate for you if you are being audited, so you can fous on your business.