How to Calculate GST, HST, and PST as a Small Business
Dealing with sales tax is an inherent part of running a small business. Get the basics down so you can focus on delivering top-notch experiences to your customers without worrying about surprise tax bills later on. We spell out the essentials to help you understand what taxes you need to charge province-by-province, and how to remit them.
Types of sales tax in Canada
Each province has its own method of calculating sales tax. The three different tax models used in Canada are GST, HST, and PST.
GST (Good and Services Tax)
GST is a Canada-wide tax that can show up in two different ways, depending on the province in which your business is registered:
- A separate tax, charged at a rate of 5%
- A portion of a province-specific Harmonized Sales Tax (HST)
HST (Harmonized Sales Tax)
HST is the combination of a province’s sales tax and the GST. Ontario, Nova Scotia, New Brunswick, PEI, and Newfoundland and Labrador use the HST model. If you are doing business in these provinces, you only need to collect one type of tax.
PST (Provincial Sales Tax)
PST is a province-specific tax that is collected separately from the GST. In British Columbia and Saskatchewan, it is called simply PST; in Manitoba, the provincial tax is known as Retail Sales Tax (RST); and Quebec charges Quebec Sales Tax (QST).
Sales tax rates by province
Use this chart to understand the sales tax rates, province by province. Check the links for more information on the types of goods and services that require tax in each part of Canada.
|Goods and Services Tax (GST)||Harmonized Sales Tax (HST)|
Provincial Sales Tax (PST)
Provincial Sales Tax (PST)
Retail Sales Tax (RST)
Quebec Sales Tax (QST)
|Prince Edward Island||15%|
|Newfoundland and Labrador||15%|
Three steps to collecting and remitting sales tax
There’s more to sales tax than just figuring out how much you need to charge. You also need to collect and remit it. Here’s a simple three-step process for taking care of that.
Step 1: Determine if you need to collect sales tax
Small businesses operating in Canada are required to collect sales tax. It’s one of the responsibilities you have as a business owner. There are very few exemptions, but they do exist.
Small providers are exempt
To qualify, your business’s worldwide yearly revenue (before expenses) needs to fall below $30,000. When it comes to sales tax, the CRA measures your “year” as the last four quarters. As soon as you surpass the $30,000 mark, you’re no longer a small supplier, starting in that calendar quarter.
There’s some print on who exactly qualifies as a small supplier, so we’d suggest reading what the CRA says about small suppliers.
Supplies taxable at 0% are exempt
Some goods are considered essentials, and thus aren’t taxed. These include: basic grocery items like milk, bread, and vegetables; agricultural products; prescription drugs and drug-dispensing services; and certain medical devices. Check the full list if you think your business might fall into this exemption category.
Some people groups are exempt
Step 2: Bill where your customers are
Sales tax rates depend on the province your customers are in, not where your business is. If your business and all of its customers are in the same province, this step will be easy. Check the tax rate for your customer’s home province and apply that to the invoice. For example, if your business is in Ontario but your client is in Nova Scotia, you’ll need to apply the Nova Scotia tax rates to the invoice. (There are some specifics to interprovincial trade: read up on them here.)
You don’t need to collect sales tax from international customers, as long as the goods or services are delivered to an address outside of Canada.
Step 3: Remit to the CRA
You’ve prepared your invoices, you’ve collected the tax: now what? You’ll need to send this money (‘remit’ is the technical term) to the CRA. Some small business owners overspend during the year and then struggle to pay back the tax money they’ve collected. Keep close tabs on how much money you have collected in the form of sales tax and set it aside for tax return time.
To remit each type of tax, you need to register for an account. Fortunately, there is one registration process for both the GST and the HST. Once you register, you may remit your taxes monthly, quarterly, or annually, depending on your filing period.
You can remit electronically, through your bank in Canada, or by mail. Payments of $50,000 or more need to be paid electronically or at your financial institution. The CRA has more details about filing periods and steps to remit.
If you’ve done business in British Columbia, Saskatchewan, Manitoba, or Quebec, you’ll need to register with the applicable provincial government. Check the links for easy access to the registration processes. Once you’ve registered, you will be assigned a reporting period. Based on your revenues, you will need to report and remit tax monthly, quarterly or yearly.
Follow these three steps, do some research on the specific tax rules for your business, and you’ll be calculating, charging and remitting sales tax with confidence. And, when it’s time to submit your tax return, all of your paperwork will be in perfect order.
This post is to be used for informational purposes only and does not constitute legal, business, or tax advice. Each person should consult his or her own attorney, business advisor, or tax advisor with respect to matters referenced in this post. Bench assumes no liability for actions taken in reliance upon the information contained herein.