If you are doing business or making purchases in Canada, it is important to understand the country’s sales tax system. In Canada, there are three types of sales taxes: Provincial Sales Tax (PST), Goods and Services Tax (GST), and Harmonized Sales Tax (HST). Each province and territory in Canada has its own sales tax rate and rules for PST, while the GST and HST are governed by the federal government. Here’s a simple guide to help you understand these taxes.
Provincial Sales Tax (PST)
Provincial Sales Tax (PST) is a tax levied by the provinces and territories in Canada on the sale or lease of most goods and some services within their jurisdiction. PST is not applicable to all goods and services and varies from province to province. Some provinces like Alberta, the Northwest Territories, Nunavut and Yukon don’t have PST.
The rates of PST are also different in each province. For example, in British Columbia, PST is 7%, in Manitoba it is 7%, in Quebec it is 9.975%, and in Saskatchewan it is 6%.
Goods and Services Tax (GST)
Goods and Services Tax (GST) is a federal tax that is applied to most goods and services sold or provided in Canada. GST is calculated as a percentage of the selling price of the goods or services and is set at a rate of 5%.
Some goods and services are exempt from GST, such as basic groceries, medical and dental services, and certain financial services. GST applies to all other goods and services, including imports, whether they are produced in Canada or elsewhere.
Harmonized Sales Tax (HST)
Harmonized Sales Tax (HST) is a combination of the federal Goods and Services Tax (GST) and the provincial sales tax (PST) in five provinces: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island.
HST is calculated at a single rate, which includes both the federal and provincial components, making it easier to calculate and administer. The HST rates vary between provinces and range from 13% in Ontario, to 15% in Newfoundland and Labrador, and Nova Scotia.
When a business in an HST province makes a sale, they charge HST instead of both GST and PST. The HST is then collected and remitted to the Canada Revenue Agency, which then distributes the provincial portion to the appropriate province.
Understanding Canada’s sales tax system is important if you are doing business or making purchases in Canada. The PST, GST, and HST rates vary from province to province, and the rules can be complex, so it’s important to seek professional advice if you are unsure about your tax obligations.