Ontario charges a harmonized sales tax (HST) as opposed to using a provincial sales tax and federal goods and services tax (PST/GST). This impacts businesses either located in Ontario or shipping goods into the province.
Other provinces in Canada using the HST include New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island.
The Ontario HST
The HST replaced the PST/GST in Ontario on July 1, 2010, to streamline the sales tax system. The HST is applied at 13% on most supplies of goods and services made in Ontario. It consists of a 5% federal tax and an 8% provincial tax, but it is listed on invoices as a straight 13%.
Combining the PST and GST into one tax allows businesses to reclaim the entire amount of sales tax. The single tax system also reduces administrative overhead, but that is somewhat offset by various exemptions and rebates.
New businesses must register for HST unless they are small suppliers. A small business that makes $30,000 or less annually is not required to register for or collect Ontario HST. However, small businesses can register voluntarily, enabling them to recover any HST paid on business purchases or expenses.
Consumers do not have to pay HST on exempt items including:
- Qualifying food and beverages, including basic groceries but not alcoholic beverages, soft drinks, candy, snack foods, etc.
- Health, medical, and dental services provided by licensed practitioners, including optometrists, chiropractors, physiotherapists, chiropodists, audiologists, speech-language pathologists, occupational therapists, psychologists, podiatrists, midwives, etc.
- Child care
- Prescription drugs
- Most financial services
For items formerly exempt from Ontario provincial sales tax but not GST, merchants must provide point-of-sale rebates of the 8% provincial part of the HST. This includes items such as:
- Children's clothing
- Children's footwear, up to size 6
- Qualifying prepared food and beverages sold for $4 or less
- Books, including audiobooks
- Child car seats and booster seats
- Feminine hygiene products
- Air travel originating in Ontario and terminating in the U.S.
Giving a point-of-sale rebate involves automatically crediting the provincial part of the HST and collecting only the 5% federal part of the HST payable on the sale of that item. Point-of-sale rebates do not affect the ability of businesses to claim input tax credits on their business inputs.
Home insurance is subject to the provincial portion of the HST, but the GST portion is exempt.
Whether or not to charge HST on goods or services depends on the place of supply. Specific rules apply to determine whether a supply is made inside or outside a participating province.
While no changes were proposed to the existing place of supply rules for supplies of tangible personal property and real property, the place of supply rules for supplies of intangible personal property changed considerably.
For the most part, the place-of-supply rules are based on the address of the recipient of a service, but there are exceptions. The Canada Revenue Agency is a good resource fo a thorough list of requirements and examples.
Just as with the GST, businesses must provide invoices, receipts, contracts, or other business papers to inform customers how much tax they are being charged so they have the documentation to claim input tax credits.