How to start charging and collecting GST/HST

After you are done with registration for GST/HST number, it's better to start collecting and charging GST/HST tax fro...

March 14, 2022

If you sell goods and services in Canada, it is necessary to charge customers the goods and services tax (GST) or the harmonized sales tax (HST). If your Canadian business needs to charge and collect GST/HST, you must know the difference between GST/HST zero-rated and GST/HST exempt goods and services. We will discuss this difference in this article.

The GST is a 5% federal tax charged in all provinces and territories in Canada on both products and services, along with HST. Whether you charge and collect just GST or GST and HST depends on your business's location and where it sells goods and services. In this blog, we will discuss the charging and collecting of GST and HST in Canada. 

What is GST number

A Goods and Services Tax (GST) Number is an identification number that the Canada Revenue Agency assigns to a business. It is a 5% federal sales tax that applies to most of the goods and services manufactured in Canada. For more information about GST Number, you can visit our blog,  GST Number: How to Register for GST Number

What is HST number?

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Harmonized Sales Tax (HST) is a sales tax applicable in several provinces in Canada. HST combines GST and the province's provincial sales tax (PST). The HST tax rate is 15% in almost all the participating provinces, except for Ontario, where the HST ratio is 13%. 

When to charge and collect GST?

Whenever you charge and collect just GST or GST and HST depends on the province where your business is situated and the type of goods or services you provide to your customers. The customers have to pay GST for taxable supplies. 

Taxable Supplies

These include property and services supplied in or imported into Canada and the supplies made in terms of some commercial activity. Such supplies are subject to the GST/HST. The GST you are liable to pay is equal to 1/11th of the sale price.  If you have registered for GST/HST, then:

  • You charge and collect the GST/HST on the supplies made in Canada.
  • You can claim input tax credits (ITCs) to recover GST/HST paid or payable

Sales that are GST-free:

There are some sales that are exempt or free from GST. It is important to identify such sales, so you do not pay GST for these sales. These sales are zero-rated and exempt goods and services.

1. Zero-Rated Supplies

These are the supplies of property and services taxable at the rate of 0%. This implies that there is no GST/HST charged on these supplies. Some of the zero-rated goods and services are as follows:

  • Farm Equipment
  • Farm livestock sold for human consumption
  • Prescription drugs
  • Most fishery products
  • Medical Devices
  • Freight Transportation Services
  • Female Hygiene Products.
  • Basic groceries

2. Exempt Supplies

Exempt supplies refer to the supplies of property and services that are not subject to the GST/HST. GST registrants generally cannot claim input tax credits to get back the GST/HST paid or payable on property and services received to make exempt supplies. Examples of exempt supplies are as follows:

  • Financial services such as fees for bank accounts, etc.
  • Legal aid services
  • Day-care services
  • Food and beverages
  • Used Residential Housing
  • Residential rental accommodation
  • Music lessons
  • Medical and Dental services
  • Educational services
  • Issuing insurance policies
  • Most goods and services provided by charities

The GST/HST you collect is remitted to the CRA via completing a GST/HST return identified with your GST number either quarterly or annually. When completing your GST/HST return, you can claim input tax credits for the GST/HST you paid or owe on purchases and expenses. For more information about input tax credits, please check our article, Everything You Need to Know about Input Tax Credits

Final Words!

You do not need to charge GST/HST on goods shipped to another country. However, there might be some export taxes for goods shipped outside Canada. For instance, products such as cigarettes and alcohol are subject to excise taxes from the provincial and federal governments.

Therefore, you need to know the difference between exempt and zero-rated supplies to understand how to charge the correct tax rate accordingly, depending on the supply and kind of goods and services you are providing and to whom you are selling these goods and services. If you are confused regarding GST/HST, you can find us easily in Mississauga and are free to contact us anytime to know about GST/HST.

Laila Batool

Executive Journalist

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