In my previous blog post about self-employed taxes in Canada, one thing I didn’t discuss was sales tax in Canada (GST, HST, 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.
Who Needs to Collect & Remit Sales Tax (GST/HST)
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. If you earn less than $30,000 in business revenue, then you are considered a small supplier and do not need to register for, collect or remit GST/HST until you exceed that threshold.
Now you may be wondering, once I exceed that threshold, what’s the deadline to register for GST/HST? Well, it depends on when you exceeded that $30,000 threshold.
Single Calendar Quarter
If you managed to exceed that $30,000 threshold in a single calendar quarter, on the day you surpassed that threshold is your effective date of registration. You must start charging GST/HST on your date of registration, and unfortunately, that includes collecting GST/HST on the sale that pushed you over the $30,000 threshold. I know, that sucks because it may mean you have to go back to the customer and charge them sales tax (or to save face, just eat it out of your own profits), but it’s because technically that sale is one that took place above that $30,000 threshold.
So, we know when you have to start collecting sales tax, but what’s the deadline to officially register for GST/HST with the CRA? You have to register within 29 days of your effective date of registration.
As an example found on the CRA’s website, here’s what exceeding that threshold in one calendar quarter looks like. As you can see, in the first and second quarters, you earned less than $30,000 in business revenue. But in the third quarter, BAM! You must have had a good sales month because you earned $8,000 over the $30,000 threshold.
Let’s say you surpassed that threshold on Sept. 12 in that third quarter. That means that Sept. 12 would be your effective date of registration, and starting Sept. 13 you’d have to start collecting GST/HST (not including the amount you’d need to collect from the sale on Sept. 12 that pushed you over that threshold). Moreover, you’d have 29 days from that effective date to register for GST/HST, which means you’d have to register no later than Oct. 9.
Last 4 Calendar Quarters
Now, depending on your business, it may be unlikely that you can make $30,000+ in a single calendar quarter, so very well you may not exceed that threshold unless you combine revenues from 2, 3 or 4 calendar quarters, as shown below.
In these cases, you exceeded the $30,000 threshold in the 2nd calendar quarter and the 4th calendar quarter respectively — March 31. Your effective date of registration is no later than 1 month after you exceed that threshold — April 30. That means that starting April 30, but no later than May 1, you need start collecting GST/HST and you have to register for GST/HST within 29 days of your effective date of registration.
Any Time You Want (But Beware)
That being said, you don’t have to wait until you make $30,000 in business revenue to register for GST/HST. If you want to start collecting and remitting GST/HST before then, you can register for an account whenever you choose (even before you’ve earned your first dollar!). Why you may want to do this is so you can take advantage of input tax credits from your business expenses. That being said, you may not want to deal with the hassle when you’re just starting your business, so waiting until you exceed that threshold may be a better idea for you.
Moreover, if you are selling a product in which you are embedding the sales tax into the price, registering for GST/HST before you need to may actually eat into your profits. This was my experience when I had a business partnership with a friend a few years ago (now defunct). We sold an online course through the platform Thinkific, and their checkout cart wouldn’t allow us to charge sales tax to our customers. Since I registered our business for GST/HST when we launched our business, this meant that every time we made a sale, I had to manually deduct sales tax from the purchase price and remit it to the government.
For example, if we sold a course priced at $399, and a customer from Ontario bought it, we’d have to deduct 13% ($45.90) from that purchase, reducing our actual earned revenue to $353.10.
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Who Needs to Collect & Remit Sales Tax (PST, RST, QST)
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 To
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.
There are also some exempt supplies from the GST/HST, meaning you do not charge the GST/HST on these goods or services. They range from child care services, music lessons, tutoring services and more. For a full list, read the Exempt Supplies section of the CRA’s webpage.
As you might also guess, each province that requires PST to be charged also has their own list of zero-rated goods and exempt supplies:
- 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? They key phrase to remember is place of supply.
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 particular 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 took 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!