HST, GST, PST in Canada: A Complete Tax Guide for SMBs

Canada's Multi-Layer Sales Tax System

Canada has one of the more complex sales tax systems in the developed world. Depending on which province you operate in, you may deal with the federal Goods and Services Tax (GST), a Harmonized Sales Tax (HST), a Provincial Sales Tax (PST), or Quebec's own sales tax (QST). Understanding which taxes apply to your business is the first step to staying compliant.

GST: The Federal Tax

The GST is a 5% federal tax that applies to most goods and services sold in Canada. It is administered by the Canada Revenue Agency (CRA) and applies nationwide.

Who Must Register for GST

You must register for GST if your total taxable revenues exceed $30,000 over four consecutive calendar quarters or in a single quarter. This is called the small supplier threshold.

If you are below the threshold, registration is voluntary. However, registering allows you to claim Input Tax Credits (ITCs) on your business purchases, which can be beneficial even for small businesses.

GST-Exempt and Zero-Rated Supplies

Not everything is subject to GST:

Zero-rated supplies (taxed at 0%, but you can claim ITCs):

• Basic groceries
• Prescription drugs
• Medical devices
• Exports

Exempt supplies (not taxed, and you cannot claim ITCs):

• Financial services
• Residential rent
• Most health, dental, and educational services
• Childcare

The distinction between zero-rated and exempt matters because it affects your ability to claim input tax credits.

HST: The Harmonized Tax

Five provinces have combined their provincial sales tax with the federal GST into a single Harmonized Sales Tax:

• Ontario - 13% (5% federal + 8% provincial)
• New Brunswick - 15% (5% federal + 10% provincial)
• Newfoundland and Labrador - 15%
• Nova Scotia - 15%
• Prince Edward Island - 15%

If you operate in an HST province, you collect one tax instead of two. The administration is simpler, but the combined rate is higher than GST alone.

PST: Provincial Sales Tax

Some provinces levy their own separate sales tax:

• British Columbia - 7% PST (plus 5% GST = 12% total)
• Saskatchewan - 6% PST (plus 5% GST = 11% total)
• Manitoba - 7% RST (Retail Sales Tax, plus 5% GST = 12% total)

In these provinces, you must register separately for PST/RST with the provincial authority. The rules for what is taxable, the registration threshold, and the filing frequency differ by province.

Quebec Sales Tax (QST)

Quebec operates its own sales tax system at 9.975%, administered by Revenu Quebec (not the CRA). Combined with GST, Quebec businesses charge 14.975% total. You must register separately for QST and file separate returns.

Alberta, Yukon, Northwest Territories, and Nunavut

These jurisdictions have no provincial sales tax, so businesses only collect the 5% federal GST.

Registration and Filing

How to Register

For GST/HST, register through the CRA online (Business Registration Online) or by phone. You will receive a Business Number (BN) with an RT account identifier.

For PST, register with the relevant provincial authority. Each province has its own registration process.

Filing Frequency

The CRA assigns a filing frequency based on your annual revenue:

• Annual - Revenue under $1.5 million. File one return per year.
• Quarterly - Revenue between $1.5 million and $6 million. File four returns per year.
• Monthly - Revenue over $6 million. File twelve returns per year.

You can request a different frequency if the assigned one does not suit your business.

Filing Deadlines

Annual filers: three months after the end of your fiscal year.

Quarterly filers: one month after the end of each quarter.

Monthly filers: one month after the end of each month.

Input Tax Credits (ITCs)

ITCs allow you to recover the GST/HST you pay on business purchases. To claim ITCs, you need:

• A valid receipt or invoice showing the supplier's GST/HST registration number
• The amount of GST/HST paid
• The date and a description of the goods or services

For purchases under $30, you need minimal documentation. For $30 to $150, you need the vendor's name, date, and total amount. For over $150, you need full details including your name and the tax breakdown.

Keep meticulous records. The CRA can deny ITC claims if your documentation is insufficient.

Quick Method of Accounting

Small businesses with annual taxable revenue under $400,000 (including GST/HST) can use the Quick Method. Instead of tracking ITCs on every purchase, you remit a flat percentage of your GST/HST-inclusive revenue. The rate varies by province and business type but is typically lower than the actual GST/HST rate, which means you keep the difference.

The Quick Method simplifies bookkeeping significantly and often results in a small financial benefit. It is worth considering if your business has relatively low input costs.

Place of Supply Rules

When you sell across provincial borders, you need to determine which province's tax applies. Generally:

• For tangible goods, tax is based on where the goods are delivered
• For services, tax is generally based on where the service is performed or where the recipient is located
• For digital products, rules are evolving but generally follow the recipient's location

These rules matter if you sell online or provide services to clients in different provinces. You may need to collect different tax rates depending on where your customer is located.

Bookkeeping for Canadian Sales Tax

Setting Up Your Accounts

Create separate tax liability accounts for each tax type you collect:

• GST Collected
• HST Collected (if applicable)
• PST Collected (if applicable)
• QST Collected (if applicable)
• GST/HST Paid on Purchases (for ITCs)

Recording Transactions

For every sale, record the revenue and the applicable tax separately. For every purchase, record the expense and the GST/HST paid (if claimable as an ITC).

Your accounting software (Xero, QuickBooks, or similar) should handle Canadian tax calculations automatically if configured correctly. SortBooks can automate transaction categorisation including the correct tax treatment.

Filing Your Returns

When it is time to file:

1. Calculate total GST/HST collected
2. Calculate total ITCs (GST/HST paid on eligible purchases)
3. The difference is what you owe (or what the CRA owes you)
4. File your return and make payment by the due date

Common Mistakes

Not registering when required - Once you cross the $30,000 threshold, you must register. Late registration can result in penalties and back-taxes.

Incorrect tax rates - Charging the wrong provincial rate is a common error for businesses selling across provinces.

Missing ITC documentation - Keep every receipt. The CRA will deny claims without proper documentation.

Mixing business and personal expenses - Only business expenses qualify for ITCs. Personal purchases do not.

Filing late - Late filing results in interest and penalties that compound quickly.

Canada's sales tax system is complex, but with the right bookkeeping setup, it is manageable. Stay organised, file on time, and keep thorough records.