As a small business owner in Canada, you’ll always need to calculate your expenses carefully so your profit margin remains secure. One tax you can’t afford to ignore is Canada’s Goods and Services Tax (GST). With the variations between provinces and the complexities surrounding customs clearance fees, things can get confusing. It’s easy to make a miscalculation.
It’s important for you to be aware of exactly what GST is, how it affects your business, how it applies to import tax, and when and how to register so you can pass GST along to your customers.
GST, PST, HST, and VAT
When it comes to Canadian taxes, it’s easy to get lost in the sea of similar-sounding acronyms. Here’s a quick guide to keep them straight:
- Goods and Services Tax (GST): a 5% tax levied by the federal government which is placed on most goods and services
- Provincial Sales Tax (PST): a tax levied by some provinces which varies by province
- Harmonized Sales Tax (HST): a combination of the Goods and Services Tax and the Provincial Sales Tax that exists in a few provinces
- Value-Added Tax (VAT): a tax that is based on the value of products (known in Canada as the Goods and Services Tax)
Calculating GST/HST by province
Whether customers have to pay GST and PST, HST, or only GST depends on the province. The different rates have the potential to impact your customers, especially if you have a very expensive product that is heavily taxed in some provinces but lightly taxed in others. Make sure to take all taxes into consideration when determining pricing.
Your business will also be affected by which provinces you sell your product in because you’ll need to register individually with provinces that have a PST (if you are required to register for GST).
- Alberta: 5% GST
- British Columbia: 5% GST + 7% PST = 12% Total
- Manitoba: 5% GST + 7% PST = 12% Total
- New Brunswick: 15% HST
- Newfoundland and Labrador: 15% HST
- Northwest Territories: 5% GST
- Nova Scotia: 15% HST
- Nunavut: 5% GST
- Ontario: 13% HST
- Prince Edward Island: 15% HST
- Quebec: 5% GST + 9.975% QST (Quebec Sales Tax) = 14.975% Total
- Saskatchewan: 5% GST + 6% PST = 11% Total
- Yukon: 5% GST
To summarize, provinces that have a PST are British Columbia, Manitoba, Quebec, and Saskatchewan. If you do business in any of these provinces, you’ll probably need to register for PST with that province in addition to registering for GST if you are required to charge taxes (see below).
When does your business need to register for GST?
In Canada, businesses that qualify as “small suppliers” are not required to charge GST on their products. How do you know when you cease to become a small supplier?
If you make more than $30,000 in a single calendar quarter or in a series of four consecutive quarters, you are no longer a small supplier. That means if you make less than $30,000 over a span of four consecutive quarters, you are considered a small supplier and do not need to register for GST.
If your revenue exceeds the small supplier limit, you are required to register for GST and charge GST on your products. Whether you are an online business or brick-and-mortar, you need to charge GST.
Non-residents of Canada also need to register for the GST if they meet the above criteria of not being a small supplier.
Wondering how to become a non resident importer in Canada? Don’t miss this guide.
How to register for GST
Once your status changes from being a small supplier, follow these steps in order to register for the GST and start charging GST/HST to your customers.
- Determine your effective date of registration. This is usually the day you stop being a small supplier.
- Know your fiscal year. This is typically the same as your income tax year.
- Calculate your total annual revenue. This includes revenue from taxable sales, leases, and other supplies of you and all your associates.
- Collect personal information of all business owners and basic business information. This includes names, social insurance numbers, dates of birth, and personal postal codes of all business owners as well as the name of your business, Business Number (if you have one), type of business, physical address, and description of the business activity.
- Register online, by mail, or by phone. To register online, go here. To register by mail, fill out Form RC1 and send it to your nearest tax service office. To register by phone, call the Canada Revenue Agency at 1-800-959-5525.
- Note your GST/HST account number. This will be sent to you once your registration is complete.
- Begin charging GST/HST. Calculate the rate of GST or HST in the province where you’re making the sale (place of supply) and include it on your receipts or invoices. Note: If you are selling your product in a province that has a PST (see above list of provinces), you’re probably required to register for PST with that specific province as well.
- File a GST/HST tax return and pay the net amount of GST/HST before the deadline. Complete your tax return and send in the net amount of GST/HST to the Canada Revenue Agency electronically or by mail.
GST and import fees Canada
The Canadian government charges GST on almost all imports to Canada. That means you’ll likely need to pay customs GST when you import products to Canada, even if you are considered a small supplier.
This is typically a 5% tax on the total value of your imported goods. You typically will not need to pay PST or the provincial part of HST on commercial imported goods.
In addition to paying GST on the value of your goods, you’re required to pay a customs clearance fee based on the value of your goods. You also must pay a 5% GST on the customs clearance fee. For example, if your customs clearance fee is $120 you’ll need to add 5% GST on that fee, so you’ll pay an extra $6.
Take advantage of our free Canada customs fees calculator to estimate the taxes and customs fees on your shipment.
Would you rather not have to worry about painstakingly calculating GST and import tax on your shipments? BorderBuddy is the most reliable customs broker Canada has to offer. We’ll make sure all your documentation is in order and the proper taxes and import fees are paid, no matter the size of your business. Give us a call today.