Day 9: Understanding GST and HST in Canada
Introduction:
The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) are important components of the Canadian tax system. These taxes apply to most goods and services sold in Canada. Today, we will explore the basics of GST and HST, including how they are applied, the differences between GST and HST, and their implications for businesses.
What is GST?
Definition:
The Goods and Services Tax (GST) is a federal value-added tax levied on most goods and services sold in Canada. The GST rate is currently 5%.
How GST Works:
GST is collected by businesses on the sale of goods and services and is then remitted to the Canada Revenue Agency (CRA). Businesses can claim input tax credits (ITCs) for the GST paid on their purchases, effectively reducing the amount of GST they owe to the CRA.
What is HST?
Definition:
The Harmonized Sales Tax (HST) is a combination of the federal GST and a provincial sales tax (PST). HST is applied in provinces that have harmonized their provincial sales tax with the federal GST. The HST rate varies by province.
Provinces with HST:
The following provinces have implemented HST:
- Ontario: 13%
- Nova Scotia: 15%
- New Brunswick: 15%
- Newfoundland and Labrador: 15%
- Prince Edward Island: 15%
How HST Works:
HST operates similarly to GST, with businesses collecting HST on sales and remitting it to the CRA. Businesses can also claim ITCs for the HST paid on their purchases.
Differences Between GST and HST
Applicability:
- GST: Applied across all provinces and territories in Canada at a rate of 5%.
- HST: Applied in specific provinces that have harmonized their sales tax with the federal GST. The HST rate varies by province.
Tax Rates:
- GST Rate: 5%
- HST Rates: Range from 13% to 15%, depending on the province.
Administration:
Both GST and HST are administered by the CRA. Businesses in HST provinces remit HST to the CRA, while businesses in non-HST provinces remit GST.
Registering for GST/HST
Who Needs to Register:
Businesses with taxable sales of more than $30,000 in a calendar quarter or over four consecutive calendar quarters must register for GST/HST. Certain businesses, such as taxi and ride-sharing drivers, must register regardless of their sales.
How to Register:
Businesses can register for GST/HST online through the CRA’s Business Registration Online (BRO) service or by completing Form RC1, Request for a Business Number and Certain Program Accounts.
GST/HST Number:
Once registered, businesses receive a GST/HST number, which they must include on their invoices and receipts when collecting GST/HST from customers.
Collecting and Remitting GST/HST
Collecting GST/HST:
Businesses must collect GST/HST on taxable sales and provide customers with invoices that include the GST/HST amount. The amount collected is calculated by multiplying the sale price by the applicable GST or HST rate.
Remitting GST/HST:
Businesses are required to remit the GST/HST collected to the CRA, typically on a quarterly basis. Some businesses may be eligible to file annually or monthly, depending on their sales volume.
Input Tax Credits:
Businesses can claim input tax credits (ITCs) for the GST/HST paid on their purchases. ITCs reduce the amount of GST/HST owed to the CRA. To claim ITCs, businesses must keep detailed records of their purchases and the GST/HST paid.
Key Takeaways
1. GST and HST Basics:
- GST is a federal value-added tax applied at a rate of 5% across Canada.
- HST is a combination of GST and provincial sales tax, applied in specific provinces at rates ranging from 13% to 15%.
2. Registration and Collection:
- Businesses with taxable sales exceeding $30,000 must register for GST/HST.
- Registered businesses collect GST/HST from customers and remit it to the CRA.
3. Input Tax Credits:
- Businesses can claim ITCs for the GST/HST paid on their purchases.
- ITCs reduce the amount of GST/HST owed to the CRA.
Concluding our topic of “Understanding GST and HST in Canada”
Conclusion
Understanding GST and HST is essential for businesses operating in Canada. By familiarizing yourself with the tax rates, registration requirements, and collection and remittance procedures, you can ensure compliance with tax laws and effectively manage your GST/HST obligations.
Stay tuned for Day 10, where we will explore personal and corporate income tax returns, including how to file and key deadlines.
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