The Canadian tax system can be complex, especially for businesses. One crucial aspect to understand is the Harmonized Sales Tax (HST). This blog post will provide a complete overview of HST in Canada, guiding you through its application, registration process, and management. Whether you’re a seasoned business owner or just starting out, understanding HST is essential for accurate tax filing and avoiding penalties.
What Is Harmonized Sales Tax (HST)?
The HST is a value-added tax (VAT) applied to most goods and services sold within participating Canadian provinces. It combines the federal Goods and Services Tax (GST) with the provincial sales tax (PST) into a single rate. This simplifies the tax collection process for both businesses and the government.
The concept behind HST came from a desire to streamline the administration of sales taxes. Businesses used to collect and submit GST and PST separately, which was inefficient and error-prone. HST eliminates this confusion, which makes paying taxes easier.
Differences Between HST, GST, And PST
It’s important to distinguish HST from GST and PST:
- GST: A federal tax of 5% applied to most goods and services across Canada. Provinces without HST still rely solely on GST.
- PST: A separate provincial sales tax that existed before HST. Provinces participating in HST no longer have a standalone PST.
Harmonized Sales Tax In Canada
Let’s take a closer look at how HST is applied in Canada.
HST Rates And Revenue Split
The HST rate varies by province, but it always includes the 5% federal portion. The remaining percentage is the provincial portion. Here’s a breakdown of how the revenue is split:
- The federal government receives 5% of the total HST collected.
- The provincial government receives the remaining portion.
For example, if the HST rate in a province is 15%, the federal government would receive 5%, and the provincial government would receive 10%.
Taxable Goods And Services
HST applies to a wide range of goods and services, including:
- Retail products
- Professional services
- Restaurant meals
- Accommodations
- Transportation services
- And many more
However, there are some exceptions. Certain essential items, such as basic groceries, prescription medications, and some healthcare services, are either zero-rated (taxed at 0%) or exempt from HST.
Harmonized Sales Tax Provinces
Not all provinces in Canada have adopted the HST system. Let’s take a look at the provinces that use HST and their specific rates:
- Ontario: 13% HST (5% federal + 8% provincial)
- New Brunswick: 15% HST (5% federal + 10% provincial)
- Newfoundland and Labrador: 15% HST (5% federal + 10% provincial)
- Nova Scotia: 15% HST (5% federal + 10% provincial)
- Prince Edward Island: 15% HST (5% federal + 10% provincial)
It’s worth noting that the remaining provinces and territories continue to use separate GST and PST systems or have only the GST:
- British Columbia: 5% GST + 7% PST
- Saskatchewan: 5% GST + 6% PST
- Manitoba: 5% GST + 7% PST
- Quebec: 5% GST + 9.975% QST (Quebec Sales Tax)
- Alberta: 5% GST only
- Yukon: 5% GST only
- Northwest Territories: 5% GST only
- Nunavut: 5% GST only
As a business owner, it’s crucial to be aware of these differences, especially if you operate in multiple provinces or sell to customers across Canada.
How To Register For HST
If your business meets certain criteria, you’ll need to register for HST. Here’s a step-by-step guide:
- Determine Eligibility: You generally need to register for HST if your business makes over $30,000 in taxable sales within a single quarter or over $120,000 in a year. Even if you fall below these thresholds but expect to soon exceed them, it’s wise to register proactively.
- Gather Information: Prepare your business number, banking information, and any relevant permits or licenses.
- Complete the Registration Form: The Canada Revenue Agency (CRA) offers online and mail-in options for HST registration. You can find the forms and instructions on the CRA website https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/account-register.html.
- Submission and Confirmation: Once completed, submit the form electronically or by mail. The CRA will usually confirm your HST registration within a few weeks.
- Importance of Registration: Registering for HST ensures you collect and remit the correct amount of tax. If you don’t register, it can result in significant penalties and interest charges.
HST In Ontario
Ontario is one of the largest provinces in Canada, and understanding its specific HST regulations is importnat for businesses operating there. The current HST rate in Ontario is 13%, comprising a 5% federal portion and an 8% provincial portion.
Current HST Rate in Ontario
The HST rate in Ontario has remained stable at 13% since its implementation in 2010. This rate applies to most goods and services sold in the province, with some exceptions for zero-rated and exempt items.
Overview of Provincial Requirements and Compliance for HST in Ontario
In Ontario, businesses must comply with provincial requirements for HST registration, collection, and remittance. This includes charging the correct HST rate, issuing proper invoices, and maintaining accurate records. Businesses must also file HST returns regularly and remit the collected tax to the CRA.
Managing And Reporting HST
Once you’re registered for HST, you’ll need to manage and report it effectively. Here’s what you need to know:
Charging And Collecting HST
- Include HST in the price you advertise and charge customers.
- Issue receipts clearly showing the separate amounts for the product or service and the HST applied.
Record Keeping
- Maintain accurate records of all sales, including HST collected.
- Keep invoices, receipts, and other relevant documents for audit purposes.
HST Returns and Remittance
- File HST returns with the CRA periodically.
- The return calculates the total HST collected and the input tax credits (ITCs) you can claim on business purchases.
- You then remit the net HST owing to the government.
Staying Compliant
- Familiarize yourself with the HST regulations outlined by the CRA.
- Consider seeking professional guidance from an accountant for complex situations.
Benefits And Challenges Of HST For Businesses
- Simplified Tax System: HST simplifies tax administration by combining GST and PST.
- Input Tax Credits (ITCs): Businesses registered for HST can claim ITCs on GST/HST paid on eligible business purchases.
- Reduced Compliance Costs: Less time and resources are spent on calculating and remitting separate GST and PST.
- Competitive Advantage: Businesses registered for HST can recover ITCs, potentially making their products and services more competitive in price.
Challenges
- Registration Requirements: For new or small businesses, meeting the filing requirements and going through the whole process can be hard.
- Record Keeping: Maintaining accurate records of sales, purchases, and HST becomes crucial.
- Filing HST Returns: HST returns can be complex, especially for businesses with diverse transactions.
- Cash Flow Management: Businesses may need to temporarily hold onto HST collected before remitting it to the CRA, potentially impacting cash flow.
Tips For Managing HST Obligations
- Invest in Accounting Software: Use accounting software designed to handle HST calculations, record keeping, and filing returns.
- Seek Professional Help: Consider consulting a tax accountant like KlariFi for guidance on HST compliance, especially if your business has complex tax situations.
- Automate Processes: Automate tasks like generating invoices and calculating HST to minimize errors and save time.
- Stay Informed: Keep yourself updated on any changes to HST regulations or rates announced by the CRA.
Managing HST effectively requires knowledge and ongoing attention to detail. KlariFi offers a team of experienced tax professionals ready to assist you with HST compliance, filing, and optimization strategies. Contact us today for a free consultation and discover how we can help your business manage the complexities of HST.
FAQs
Which provinces in Canada use HST?
Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island have adopted HST.
Register for HST through the Canada Revenue Agency’s Business Registration Online (BRO) service or by submitting a paper form.
Do I need to register for HST?
Generally, yes, if your business makes over $30,000 in taxable sales in a quarter or $120,000 in a year.
How do I charge HST to customers?
Include HST in your advertised price and clearly show the separate amounts for the product and HST on receipts.
How often do I file HST returns?
HST returns are typically filed with the CRA quarterly.
Can all businesses claim input tax credits?
Yes, businesses can claim input tax credits for the HST paid on eligible business expenses.
