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. Here are the provinces that use HST and their 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)
Remaining provinces and territories use separate GST and PST systems or only GST:
- British Columbia: 5% GST + 7% PST
- Saskatchewan: 5% GST + 6% PST
- Manitoba: 5% GST + 7% PST
- Quebec: 5% GST + 9.975% QST
- Alberta: 5% GST only
- Yukon, Northwest Territories, 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.
- Gather Information: Prepare your business number, banking information, and relevant permits or licenses.
- Complete the Registration Form: The CRA offers online and mail-in options for HST registration. Register here.
- Submit and Confirm: Once completed, submit the form electronically or by mail. The CRA will confirm your registration within a few weeks.
- Importance of Registration: Registering ensures you collect and remit the correct tax. Failure to register can result in penalties.
HST In Ontario
Ontario’s HST rate is 13%, comprising a 5% federal portion and an 8% provincial portion.
Current HST Rate in Ontario
The rate has remained stable at 13% since 2010 and applies to most goods and services, with some zero-rated and exempt exceptions.
Provincial Requirements and Compliance
Ontario businesses must comply with provincial requirements for HST registration, collection, and remittance. This includes charging the correct rate, issuing invoices, keeping records, and filing returns.
Managing And Reporting HST
Charging And Collecting HST
- Include HST in advertised prices.
- Issue receipts showing product/service price and HST separately.
Record Keeping
- Maintain accurate sales records, including HST collected.
- Keep invoices, receipts, and documents for audits.
HST Returns and Remittance
- File returns with the CRA periodically.
- Calculate collected HST and claim ITCs.
- Remit net HST owing to the government.
Staying Compliant
- Stay updated on CRA HST regulations.
- Seek professional tax guidance if needed.
Benefits And Challenges Of HST For Businesses
- Simplified Tax System: Combines GST and PST into one tax.
- Input Tax Credits (ITCs): Claim ITCs on eligible business expenses.
- Reduced Compliance Costs: Less time and effort on separate filings.
- Competitive Advantage: Recovering ITCs can make your pricing more competitive.
Challenges
- Registration Requirements: Can be complex for small businesses.
- Record Keeping: Accurate documentation is essential.
- Filing Returns: Multiple transactions can complicate filings.
- Cash Flow Management: Businesses must manage collected HST until remittance.
Tips For Managing HST Obligations
- Use Accounting Software: Simplifies HST calculations and filing.
- Seek Professional Help: Tax experts like KlariFi can guide compliance.
- Automate Processes: Automate invoices, calculations, and reports.
- Stay Updated: Watch for CRA announcements on rates or policies.
FAQs
Which provinces in Canada use HST?
Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
How do I register for HST?
Register through the CRA’s Business Registration Online (BRO) service or by submitting a paper form.
Do I need to register for HST?
Yes, if your business makes over $30,000 in taxable sales per quarter or $120,000 annually.
How do I charge HST to customers?
Include HST in the advertised price and show it separately on receipts.
How often do I file HST returns?
HST returns are typically filed quarterly with the CRA.
Can all businesses claim input tax credits?
Yes, businesses can claim ITCs on eligible HST-paid expenses.
