What is GST/HST?
What is the GST/HST?
The Goods and Services Tax (GST) is a tax that applies to most supplies of goods and services made in Canada. The GST also applies to some circumstances involving real property such as land buildings, and interest in those properties.
Most provinces harmonized their provincial sales tax with the federal GST to implement the Harmonized Sales Tax (HST). Generally speaking, HST applies to the same transactions that GST would. Any GST/HST registrant will collect tax at the 5% GST rate, whereas the HST rate can vary from province to province.
Who pays the GST/HST?
Nearly everyone must pay GST/HST on purchases of a taxable supply in Canada. However, some groups and organizations, such as certain provincial and territorial governments, do not always pay the GST/HST on their purchases and expenses.
Who Charges the GST/HST?
Generally, the GST/HST registrant (or business) will have to charge and collect GST/HST on all taxable supplies they provide to customers.
What is a Taxable Supply?
Taxable supplies include:
- sales and rentals of commercial real property;
- sales and leases of automobiles;
- car repairs;
- taxi or commercial ride-sharing services;
- legal and accounting services;
- publications such as books, magazines, and periodicals;
- rights to operate franchises;
- hotel accommodation; and
- barber and hairstylist services.
What is a Zero-Rated Supply?
Some supplies are considered “zero-rated” under the GST/HST rules (meaning GST/HST applies at a rate of 0%). This means that the business will not have to charge GST/HST on these supplies and may be eligible to claim Input Tax Credits (ITCs) on those supplies. Some examples include:
- basic groceries such as milk, bread, and vegetables;
- agricultural products such as wheat, grain, raw wool, and dried tobacco leaves;
- prescription drugs and drug-dispensing services;
- certain medical devices such as hearing aids and artificial teeth;
- exports (most goods and services for which you charge and collect the GST/HST in Canada, are zero-rated when exported); and
- feminine hygiene products.
As a GST/HST registrant, you can generally claim an ITC for any GST/HST paid or payable on your business purchases which you use to provide taxable property and services.
What are Exempt Supplies?
Some supplies are exempt from GST/HST. Meaning as a business you would not charge GST/HST on those supplies and services, and you are not entitled to claim ITCs on the same supplies and services. Exempt supplies include but are not limited to:
- most health, medical, and dental services performed by licensed physicians or dentists for medical reasons;
- bridge, road, and ferry tolls (ferry tolls are zero-rated if the ferry service is to or from a place outside Canada); and
- many educational services such as:
- tutoring services made to an individual in a course that follows a curriculum designated by a school authority.
How to Calculate your Net Tax
If you are a GST/HST registrant, once you collect GST/HST, you must calculate your net tax owing for each GST/HST reporting period and subsequently report this on your GST/HST return. To do so, you must calculate:
- the GST/HST collected or that became collectible by you on your taxable supplies made during the reporting period; and
- the GST/HST paid and payable on your business purchases and expenses for which you can claim an ITC.
The difference between these two amounts, including any adjustments, is called your net tax. It is either your GST/HST remittance or your GST/HST refund. If you charged or collected more GST/HST than the amount paid or payable on your purchases, send the difference to the CRA. If the GST/HST paid or payable is more than the GST/HST you charged or collected, you can claim a refund of the difference.
Overall, registering your GST/HST account, determining your reporting periods, and determining whether to charge GST/HST, can be a difficult endeavour and, if not executed correctly, can bring about unwanted tax consequences. If you have any questions or need any assistance regarding your GST/HST account, or any tax matter, please feel free to contact us today!
This article provides information of a general nature only. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in this article. If you have specific legal questions you should consult a lawyer.