What Is the Canadian Harmonized Sales Tax (HST)?
Definition & Examples of the HST
Harmonized sales tax (HST) is a consumer tax that combines the Canadian federal goods and services tax (GST) and provincial sales tax (PST). It is collected by the Canada Revenue Agency (CRA) which then remits the appropriate amounts to participating provinces.
Not all Canadian provinces collect the HST. Your sales tax rate—and type of sales tax—will depend on where you are in the country.
What Is the Harmonized Sales Tax?
Harmonized sales tax is a retail consumption tax levied at the point of sale. It adds a percentage of the sales price to the transaction, which the business collects and then remits to the CRA.
In Canada, sales taxes were traditionally divided into the federal sales tax (GST) and the provincial sales tax (PST). Each province has its own rates, resulting in significant differences in the sales tax rate across the country. This began to change with the introduction of the HST in 1997. This system was designed to combine federal and provincial tax rates into one standard rate across the provinces. Although the provinces have gradually adopted the program, the majority still use the traditional system.
How Harmonized Sales Tax Works
If your business sells any taxable goods and services anywhere in Canada and you do not qualify as a small supplier, you must register your business for a GST/HST account. This applies whether your province collects the HST or a combination of the GST and PST. You must begin collecting and reporting sales tax on your effective date, which varies depending on when you no longer count as a small supplier.
A small supplier is one that has not sold more than $30,000 worth of goods and services over the past four quarters.
If your province uses a combination of the GST and PST instead of the HST, you must also register to collect PST in your province and any provinces where you sell taxable goods and services.
Once your business is registered for a GST/HST account, you must begin collecting the tax and reporting and remitting it based on your assigned reporting period, which will be monthly, quarterly, or annually. Your rate will depend on where your business is located and where it taxable supplies goods and services. The Canada Revenue Agency will divide up the taxes collected between the federal and provincial governments.
HST and Other Tax Rates in Canada
Canadian provinces and territories use the following tax systems to charge their customers:
- Ontario: This province implemented HST in 2010.
- Nova Scotia, New Brunswick, and Newfoundland and Labrador: HST has been in effect since 1997.
- Prince Edward Island: This province implemented the HST in 2013.
- British Columbia: B.C. switched to HST in 2010, but opposition led to a referendum resulting in the province converting back to the PST/GST in 2013.
- Saskatchewan, Manitoba, and Quebec. PST is commonly used in these provinces. However, Quebec sales tax is identified by the acronym QST.
- Alberta, Yukon, Nunavut, and the Northwest Territories. These provinces have no provincial sales taxes and therefore no HST. Consumers are charged the GST on taxable goods and services.
To compensate low-income individuals who are affected by the GST/HST, the federal—and some provincial—governments issue a GST/HST credit, a tax-free quarterly payment intended to offset all or part of the GST/HST paid. Eligibility for the GST/HST credit is determined from the previous year's tax return. Businesses may also be eligible for the input tax credit to offset their HST obligations with some of the costs of doing business.
The following table presents the type and amount of taxes that each Canadian province or territory uses as of August 2020.
|British Columbia||GST 5% & PST 7%||As of April 1, 2013.|
|Manitoba||GST 5% & RST 7%||The provincial sales tax is known as retail sales tax (RST).|
|New Brunswick||HST 15%|
|Newfoundland & Labrador||HST 15%||As of July 1, 2016, the HST rate increased from 13% to 15%.|
|Northwest Territories||GST 5%|
|Nova Scotia||HST 15%|
|Prince Edward Island||HST 15%||As of Oct. 1, 2016, the HST rate increased to 15%.|
|Quebec||GST 5% & QST 9.975% (QST)||As of January 1, 2013, the QST rate will be 9.975%, but will no longer be charged on GST. This results in no change to the total tax.|
|Saskatchewan||GST 5% & PST 6%|
Goods and Services Sold Outside the Province or Country
Because of the differing tax regimes, selling goods and services to another province or territory is not easy for Canadian businesses. You must charge either HST or GST/PST according to the destination provincial/territorial rates. For example, if your business resides in Ontario but you are shipping goods to Manitoba, rather than charging the Ontario rate of 13% HST on the sale, you would charge 5% GST and 7% Manitoba RST.
Sales taxes do not apply to sales of goods and services to jurisdictions outside of Canada. This includes sales to Canadian businesses as long as the destination address is outside Canada. For example, if a business in British Columbia sells a product to a business located in Nova Scotia but the product is to be used and shipped outside of the country, there is no HST/GST/PST charged on the transaction.
- The harmonized sales tax combines federal and provincial sales taxes into one lump tax rate in some Canadian provinces.
- Any business that sells taxable goods and services worth more than a total of $30,000 over the previous four quarters is required to register for a GST/HST account.
- Not all provinces use the HST; some collect federal and provincial taxes separately and a few only collect federal sales tax.
- Businesses must pay sales taxes in any provinces where they sell their goods and services.