Canadian Sales Tax
Structure
The
Canadian sales tax structure is comprised of two separate taxes and a third tax
which is a blend of the first two taxes. Both taxes are administered by a
Provincial (State) and Federal government agency each responsible for
collection of their respective tax assessments. In the case of the blended tax
the Provincial (State) agency collects the Federal component on behalf of the
Federal agency and remits that portion directly to the Federal government.
1.
Federal
Sales Tax or GST (Goods & Services Tax)
2.
Provincial
(State) RST (Retail Sales Tax) formerly known as PST (Provincial Sales Tax)
3.
Blended
Federal and Provincial (State) Tax HST (Harmonized Sales Tax)
Goods and Services Sale Tax (GST)
This
tax is administered at the Federal level and is charged against all purchases
for either goods or services for both retail and wholesale purchases at a rate
of 5% nationally. Businesses who used to be exempt from paying any Federal
taxes must now pay the GST on all business related purchases but may deduct the
amount of their GST taxes paid out for all business related purchases against
the amount of GST they have collected from the sales of their goods or services
remitting this difference quarterly directly to the Federal Government. For accounting
purposes and ease of calculating this difference, the GST is shown as a separate
line item on all invoices and must flow through the general ledger as both an asset
(taxes paid out but claimed back) and a liability (taxes charged and remitted).
No
one person or business is exempt from this tax with the exception of the
following short list.
1.
Provincial
(State) run businesses, corporations or provincial (State) government agencies.
2.
Farming
operations or Family Farms possessing a Federal Farm Number
3.
Indigenous
First Nation Aboriginal people possessing a Federal Treaty (Band) number
Retail Sales Tax (RST)
formerly Provincial Sales Tax (PST)
This
tax is administered and the Provincial (State) level and is billed against all
purchases for only goods and not services (labor) at a rate determined by each
individual Province (State). Some Provinces (States) have legislated certain
essential items (such as food and children’s clothing) as tax exempt but
otherwise this tax applies to all purchases. This rate varies significantly
across the country from 0% in Alberta to 10%
in Nova Scotia
(see Chart below).
|
Province (State)
|
Tax Type
|
Provincial Rate (%)
|
Total Tax Rate (%)
|
|
British
Columbia
|
GST
+ PST
|
7
|
12
|
|
Alberta
|
GST
|
0
|
5
|
|
Saskatchewan
|
GST
+ PST
|
5
|
10
|
|
Manitoba
|
GST
+ RST
|
8
|
13
|
|
Ontario
|
HST
|
8
|
13
|
|
Quebec
|
GST
+ QST
|
9.975
|
14.975
|
|
Prince
Edward Island
|
HST
|
9
|
14
|
|
Nova
Scotia
|
HST
|
10
|
15
|
|
New
Brunswick
|
HST
|
8
|
13
|
|
Newfoundland and Labrador
|
HST
|
8
|
13
|
|
Nunavut
|
GST
|
0
|
5
|
|
Yukon
|
GST
|
0
|
5
|
When
billed out as a separately collected tax each Provincial (State) tax is only
charged those individuals or businesses that reside in that province. The tax
is also not charged for any purchases made by a business either wholesale,
retail or manufacturer if the item being purchased is for resale, wrought into
the manufacture or used in the packaging of a product intended for resale. Any
business claiming this exemption must possess a registered Provincial (State)
RST exempt number. When this tax exempt number is used by a customer against a purchase
their RST number must appear on the suppliers invoice.
Harmonized Sales Tax
(HST)
This
tax is a blended tax comprised of the first two taxes described above. It is
administered at the Provincial (State) level where the Provincial share is
split from the total collected and the Province remits the Federal portion
directly to the Federal tax agency. This eliminates businesses from the hassle
of remitting separate tax collections but does now taxes all purchases with the
provincial tax component eliminating the Provincial (State) tax exempt status
for most businesses residing in those provinces that have adopted the
harmonized tax. The Harmonized Sales Tax simplifies the accounting process by
combining the two taxes into a single tax. Businesses can still deduct HST paid
out against HST collected from sales so the need for an asset tax account and
liability tax account within the G/L is still required.
Last updated: 5/20/2014
