What Is the Goods and Services Tax (GST)?
And Does Your Small Business Need to Charge GST?
The GST (Goods and Services Tax) is "a 5% tax on the supply of most goods and services in Canada" (Canada Revenue Agency (CRA)).
In provinces that still have provincial sales taxes on goods and services, the GST is charged in addition to provincial retail taxes (i.e. in Saskatchewan, Manitoba and British Columbia). In Newfoundland and Labrador, New Brunswick and Nova Scotia, PEI and Ontario, the GST is combined with the PST (Provincial Sales Tax) to create the HST (Harmonized Sales Tax). See How to Invoice for current GST/PST/HST rates for all provinces and territories.
Who Must Pay the GST/HST?
As a consumer, you pay the GST/HST on all taxable goods and services, except zero-rated and exempt goods and services. There are always exceptions. Provincial and territorial governments and First Nations people do not always have to pay GST/HST.
As a business, unless you qualify as a Small Supplier (as described below), you must charge GST on all taxable goods and services.
Can a Non-Resident Consumer Recover GST/HST Paid on Goods Purchased in Canada?
Non-resident consumers cannot recover the GST/HST paid on goods purchased (and taken possession of) in Canada unless they can prove that the goods were exported from Canada within 60 days of purchase. The purchaser must complete the required export/import documents and have them stamped by border authorities.
A purchaser who arranges for the vendor to directly ship the goods to an address outside of Canada will not be charged GST/HST.
What Are Some Examples of Items That Are Exempt From GST/HST?
- Sales of used residential housing (if the owner is not a builder and the building has not been substantially renovated)
- Residential rent (if longer than one month duration)
- Residential condominium fees
- Medical and dental services - includes doctors, dentists, dental hygienists, orthodontists, optometrists, chiropractors, physiotherapists, audiologists, psychologists, podiatrists, dieticians, social workers (but not massage therapists)
- College/University/Vocational school courses that lead to a diploma or degree or are required to practice a trade or vocation
- Legal aid
- Music lessons
- Toll charges on ferries, roads, bridges, etc.
- Financial service charges such as bank account fees, loan fees, etc.
- Services provided by local governments, municipalities, charities, and public institutions such as water distribution, sewerage, garbage and recycling collection, licenses and permits, transit
See also the Canada Revenue Agency's Exempt Goods and Services.
What Are Some Examples of Zero-Rated Items?
A purchaser does not pay GST on a zero-rated item; however, the seller can claim Input Tax Credits to recover the GST/HST paid on purchases or expenses related to the sale of the item. Examples:
- Basic groceries - includes meat, poultry, fish, cereals, milk, eggs, vegetables (fresh, frozen, canned), coffee, tea, etc. (does not include items not necessary for dietary needs, such as snack foods, liquor, sodas, candy, etc.)
- Prescription Drugs and dispensing fees. Most over the counter medications such as pain relievers, vitamins and minerals, supplements, cold remedies, bandages, etc. are not zero-rated and GST/HST must be charged. (Generally, if the item does not require a prescription and is intended to treat a minor ailment it is not zero-rated.)
- Medical devices, including wheelchairs, walkers, canes, guide dogs, hearing aids, artificial teeth or limbs, eyeglasses or contact lenses, guide dogs, asthmatic devices, modifications to motor vehicles to accommodate disabilities, orthotics, etc.
- Certain exported goods and services. Goods must be shipped to a destination outside of Canada.
Does My Business Need to Charge the GST?
Businesses that are deemed to be Small Suppliers by the Canada Revenue Agency (CRA) do not have to charge GST/HST.
A GST/HST Small Supplier is defined as a sole proprietor, partnership or corporation whose total taxable revenues before expenses are $30,000 or less in the last four consecutive calendar quarters or a public service body (such as a non-profit organization) that has total taxable revenues of $50,000 or less in the last four consecutive calendar quarters.
Some businesses, however, are not allowed to claim Small Supplier status; taxi and limousine operators, for instance, must register for GST no matter how small their annual income.
How Do I Register and Charge/Remit the GST/HST?
If you do not qualify as a Small Supplier and provide taxable goods or services, you will need to charge, collect and remit the Goods and Services Tax. The basic process is to register for a GST account with the Canada Revenue Agency, keep track of the GST/HST that you collect and/or pay, and complete and file a GST/HST tax return every quarter (or whatever your assigned reporting period is).
You can claim an Input Tax Credit (ITC) for the GST that you pay or owe "on purchases and expenses you use, consume, or supply in your commercial activities" (CRA).
For sample invoice templates, see: