In my previous blog post about self-employed taxes in Canada, one thing I didn’t discuss was sales tax in Canada (HST, GST, and PST).
And that’s because income tax and sales tax are completely different beasts and deserve their own stand-alone blog posts. So here we go, let’s dive into the exciting world of sales tax!
What I should make clear before I start is that I’m only going to be discussing sales tax in Canada when you’re a sole proprietor or partnership business. I won’t be discussing how it works if you run a corporation in Canada. Corporate tax is very different, so I’ll leave that for a future blog post to keep everything nice and organized.
Difference Between a Sole Proprietorship & Partnership for Income & Sales Tax
Since I mentioned sole proprietorship and partnership business setups, I want to explain the difference between them. In Canada, a partnership is actually very similar to a sole proprietorship. I know this first-hand since back in 2017-2018, I actually had a business partnership with a friend, which is now sadly no more. Does anyone remember when I launched Rich & Fit, my attempt at making fitness and finance accessible and fun? No? Yeah, that’s why it’s now defunct.
Hey, it’s all part of the entrepreneurial journey. Sometimes things work out, and sometimes they don’t. And I don’t regret a thing. Jaclyn Phillips, my old business partner, is killing it with her fitness business, and I’m doing way better by just sticking to personal finance. Moreover, I took away some valuable knowledge about the difference between a sole proprietorship and partnership in Canada…which I can now pass onto you!
So…what’s the big difference? Well, when you’re in a partnership:
“Each partner contributes money, labour, property, or skills to the partnership. In return, each partner is entitled to a share of the profits or losses of the business. The business profits (or losses) are usually divided among the partners based on the partnership agreement.
Like a sole proprietorship, a partnership is easy to form. In fact, a simple verbal agreement is enough to form a partnership. However, most partnerships are governed by a written agreement setting out rules for partners entering or leaving the partnership, the division of partnership income, and other matters.” (Canada.ca)
In the case of Jaclyn and I, we had a verbal agreement that we would split the business 50/50. So any expenses we’d split 50/50, and any profits we’d split 50/50. Since I was the money person out of the two of us, I did our business accounting and made sure to track all of our earnings and expenses.
Then, when it was income tax time, it was fairly straight-forward. Since a partnership by itself doesn’t pay income tax, each partner includes their share of the partnership’s income or loss on their personal tax return. This meant me calculating our business revenue, subtracting eligible business expenses, and then reporting to Jaclyn her share of the business profits so she could claim it on her personal tax return (and thus pay income tax on it).
As far as paying GST/HST as a partnership, that was also fairly straight-forward too. If your business is required to collect and remit sales tax in Canada, all you have to do is register for a GST/HST account for your partnership, start collecting sales tax on the goods and services you’re selling, then file and pay it to the CRA. And if you’re supplying goods and services to provinces that also require PST to be collected, then you’ll have to do that for each applicable province (more info on that below).
As our business’ bookkeeper, I made sure to keep track of all GST/HST collected, then filed and remitted it to the CRA on both of our behalfs.
As you may guess, being a sole proprietor is a lot simpler since you’re the sole owner and operator of the business. While I had that partnership with Jaclyn, I was also a sole proprietor (and still am!). Similar to a partnership, as far as sales tax in Canada goes, all I had to do was register for a GST/HST account, then start collecting, filing, and remitting sales tax.
Who Needs to Collect & Remit Sales Tax (HST, GST, PST)
Ok, let’s get into it! Let’s start by discussing which businesses actually need to collect and remit sales tax. If you are a sole proprietor or partnership, you need to register for a GST/HST account and start collecting and remitting sales tax to the CRA if your total business revenue (before expenses) from your worldwide sales is $30,000 or more in any single calendar quarter or in the last four consecutive calendar quarters.
As soon as you exceed that threshold, you will be considered a registrant and must start collecting GST/HST on any future sales. You must also register for a GST/HST account within 29 days of that effective date. To register for a GST/HST account, visit this page on Canada.ca.
That being said, you don’t have to wait until you make $30,000 in business revenue. If you want to start collecting and remitting GST/HST before then, you can register for an account whenever you choose.
As for provinces that also require PST (Provincial Sales Tax) to be charged, I’ll be honest, it’s a big headache. I’ll go more in-depth about how to know if you need to charge PST, but basically if you know you have to charge PST (in addition to GST) to customers, then you also need to register and remit PST to each applicable province. To learn more and register for PST for each province:
- British Columbia PST Registration
- Saskatchewan PST Registration
- Manitoba RST Registration (PST is called RST in Manitoba)
- Quebec QST Registration (PST is called QST in Quebec)
What Sales Tax to Charge
Another common question I get asked is what sales tax do I collect for my business? Is it GST? HST? GST and PST? The answer depends on where the place of supply is. In other words, in which province are you supplying your goods and/or services to?
Who Not to Charge Sales Tax
But of course there are exceptions to every rule. There are a few instances in which you do not charge any GST/HST. If you sell goods that are categorized as zero-rated, then you do not need to collect any GST/HST. These supplies would include things like agricultural products, most farm livestock, feminine hygiene products, and certain medical devices. For a broader list, check out this list of other zero-rated supplies.
And as you might guess, each province that requires PST to be charged also has their own list of exemptions:
- British Columbia PST exemptions
- Saskatchewan PST exemptions
- Manitoba RST exemptions
- Quebec QST exemptions
Lastly, if you provide goods and services to customers outside of Canada, you do not charge them any sales tax.
Who to Charge GST/HST
So those are the types of customers who you don’t have to charge sales tax in Canada to, but what about everyone else? Let’s start with who you need to charge GST/HST to specifically.
If, for example, you run an online business in which you sell and ship t-shirts to customers in Ontario, then you would charge those Ontario-based customers 13% HST. But, if you also sold and shipped t-shirts to customers based in Nova Scotia, you would charge those customers 15% HST. And if you sold and shipped t-shirts to customers based in Alberta, you would charge them 5% GST.
But, let’s say you open up a physical storefront in Ontario to sell your t-shirts. What would you charge non-resident customers if they wish to buy some of your merchandise? Well, since the place of supply is now Ontario, not the customer’s place of residence, they would be required to pay 13% HST. That’s why when you’re a tourist somewhere, you are automatically charged that region’s sales tax since that is the place of supply and where sales tax is attributed.
That being said, depending on what goods and/or services you’re selling, customers may be able to apply for a GST/HST rebate.
But What About Digital Goods & Online Services?
And since I know I’m going to get this question in the comments, if you sell a digital product in which there’s no shipping required (like an e-course) or provide an online service (like online coaching), then I would still go by these rules. Since digital goods and online services are still relatively new, I have seen lots of conflicting information about this while doing my research for this blog post. Moreover, I’m not a CPA, so feel free to discuss your situation with a tax expert. But from everything I’ve read from different government and tax accounting websites, to me it looks like the place of supply for digital goods and online services would be the place of residence of the customer, not the location in which you are conducting business.
So, if you are based in Ontario but you are selling an e-course to a customer in Alberta, you would charge them 5% GST (not 13% HST).
For a full breakdown of provinces/territories with GST or HST, here’s a handy table for you to memorize.
|New Brunswick||15% HST|
|Newfoundland & Labrador||15% HST|
|Northwest Territories||5% GST|
|Nova Scotia||15% HST|
|Prince Edward Island||15% HST|
Who to Charge PST
Now, let’s complicate things further by talking about provinces that charge PST! If you were to sell and ship t-shirts to customers in BC and/or Manitoba, then you would charge them 5% GST and 7% PST/RST (12% total). For customers in Saskatchewan, it would be 5% GST and 6% PST (11% total), and for customers in Quebec, it would be 5% GST and 9.975% QST (14.975% total).
|British Columbia||5% GST + 7% PST|
|Saskatchewan||5% GST + 6% PST|
|Manitoba||5% GST + 7% RST|
|Quebec||5% GST + 9.975% QST|
And that’s it! Simple right? I know, I know. Lots of this may be hard to get your head around. It too me a while when I was just starting out with my business too. But I promise, once you go through a few business cycles, it will get easier. Everything gets easier with experience!
Now, I bet you’re now wondering how to go about collecting sales tax, how to keep it organized, and how to actually remit it to the federal and/or provincial governments. Since this blog post was a lot, I’m going to be sharing all that info in another blog post. So stay tuned for that!