GST/HST 101

Updated: May 16, 2024

The basics

As a new business owner, once you’ve incorporated your company, the next item on your list of things to do should be to determine whether or not you need to register for GST or HST.

In this blog post, we will go over the requirements and basics of sales tax in Canada which include both the GST and HST.

Why do you need to charge GST/HST?

GST stands for Goods and Services Tax.

HST stands for Harmonized Sales Tax and is the tax that applies for any goods and services sold in Ontario.

Any business in Canada that sells goods or services worth more than $30,000 is required to charge GST or HST to their customers. This rule applies to non-residents who operate a business in Canada. That means, if you’re an US Company selling in Canada, this would apply to you too.

The $30,000 threshold is called the Small Supplier Threshold.

An exception to this rule applies to taxi operators and commercial ride-sharing drivers (ex. Uber drivers). If you earn income on a monthly basis from either of these two activities, then you’ll have to the register for an GST or HST account even if your sales are below the $30,000 threshold.

How do you register for GST or HST?

Getting registered for GST or HST is quite simple. The easiest way to do this is to call CRA (1-800-959-5525) and ask to be registered for GST or HST.

How does it work?

Once you exceed the $30,000 threshold in a single quarter or over four consecutive quarters you will need to register for GST or HST.

You must then charge the GST or HST one every single sale you make after crossing the $30,000 limit. You must inform your customers that the tax is being collected and you must include your GST or HST number of every invoice you send to a customer.

At the end of the year, the GST or HST you remit to the government is the net amount of: (1) the amount of GST or HST you collect, less (2) the amount of GST or HST you paid.

Tax rate

The HST rate you have to charge a customer depends on the good or service you are selling and where it is being sold.

Certain types of goods and services are not subject to GST or HST as they are considered to be (i) zero-rated, or (ii) exempt supplies.

Zero-rated goods or services are not subject to GST or HST however, the merchant can claim Input Tax Credits (ITCs) to recover the GST or HST paid to make these goods available. Zero-rated goods or services include:

• Basic groceries
• Prescription drugs
• Most fishery products
• Certain medical devices
• Feminine hygiene products
• Exports
• Transportation services where the origin is outside Canada.

Exempt goods or services are not subject to GST or HST however, the merchant cannot claim Input Tax Credits (ITCs) to recover the GST or HST paid to make these goods available. Exempt goods or services include:

• Rentals for one month or more
• Most medical and dental services provided by physicians and dentists
• Childcare services for children under the age of 14
• Legal aid services
• Music Lessons
• Various educational services
• Most services provided by financial institutions
• Insurance
• Property and services provided by charitable organizations,
• Property and services provided by municipalities and public service bodies.

If the goods or services you sell don’t fall into the category of a “zero-rated” or “exempt”, and your company has revenues of more than $30,000/year then you will need to charge GST/HST.

Selling Outside Ontario

If you’re selling your product or service in Ontario, the sales tax to charge your customers is simple enough, good and services sold in Ontario are subject to 13% HST.

It gets a bit more complicated when you sell your products and services outside Ontario. If you’ve ever lived outside Ontario, you might know that the sales tax you pay when you buy something is based on your billing address. To understand this concept, let’s look at an example with a few scenarios:

Example: Assume that you purchase a taxable widget online

• If you’re billing address is located in Alberta, you will be charged 5% GST (no provincial sales tax)
• If you’re billing address is located in British Columbia, you will be charged 5% GST + 7% PST (Provincial Sales Tax)
• If you’re billing address is located in Quebec, you will be charged 5% GST + 9.975% QST (Quebec Sales Tax)

Note: all tax rates above are current as of October 2020

The bottom line is that if you’re a business selling to a customer in another province, in most cases you will charge and collect sales tax based on the province in which your customer is located.

How to calculate the GST/HST you owe to the CRA?

The standard method to calculate GST/HST owing to the CRA is as follows:

In order to work through the calculation, accurate record-keeping of the GST or HST you’ve collected and paid is critical. It is highly recommended that you use a bookkeeping software. Doing so ensures your recordkeeping for GST or HST is accurate.

The CRA allows smaller businesses to adopt other methods of calculating GST or HST owing such as the (i) quick method for businesses with revenues of less than $400,000 and (ii) an alternative calculation of Input Tax Credits (ITCs) using the simplified method for businesses with revenues of less than $1,000,000.

When is payment due?

You need to file and pay your HST return within the months of year-end. As an example, if your year-end is December 31, 2024, you will need to file your HST return by March 31, 2025.

Although you can file your GST or HST tax annually, the CRA won’t wait for your money.

Businesses that have a GST or HST tax liability of more than $3,000/year are required to make quarterly GST or HST installment payments with set payment dates.

These quarterly installment payments are based on (i) ¼ of the next tax you paid in the previous year or (ii) ¼ your estimate of total net tax in the current year.

Do you need help with your HST or GST? Let us help you. Get in touch with us here or sign up to get more accounting and tax tips in our newsletter here.

The accounting and tax information provided in this post does not constitute advice and is meant to be for general information purposes only. The information is current as at the date of this post and does not reflect any changes in accounting and/or tax legislation thereafter. Moreover, the information has been prepared without considering your company or personal financial/tax circumstances and/or objectives.