Foreign companies doing business in Canada should familiarize themselves with several tax terms – the Goods and Services Tax (GST), the Provincial Sales Tax (PST), and the Harmonized Sales Tax (HST).
The GST is a 5% federal tax that applies to most Canadian goods and services. It was implemented in 1991, to replace the hidden Manufacturer’s Sales Tax (MST). Many provinces (Ontario, Newfoundland & Labrador, Nova Scotia, New Brunswick, and Prince Edward Island) combined their PST with the GST, resulting in a standard HST that applies to the goods and services subject to both taxes. The province of Alberta, as well as the three territories (Yukon, Nunavut, and Northwest Territories) do not have PST and charge only GST. British Columbia, Saskatchewan, and Manitoba still charge PST. The province of Quebec has its own Quebec Sales Tax (QST), which is collected on most goods and services and administered through Revenu Quebec.
The system can seem quite daunting. Mercifully, there exists tools to help businesses determine the appropriate tax rate in the appropriate province or territory.
The GST/HST is applied according to the tax schedule in the destination province or territory. Not all items are subject to GST/HST. Zero-rated goods and services include basic groceries, farm equipment and livestock, prescription drugs, and medical devices. Goods and services exempt from GST/HST include used residential housing, music lessons, medical and dental services, and legal aid services. (A complete list of GST/HST exempt supplies and services can be found here.)
Most businesses over a certain revenue threshold are required to collect GST and will need to register for a GST/HST account. The Canada Revenue Agency offers a guide to the GST/HST specifically designed for non-resident businesses.
If a business’s taxation requirements are unclear, it is advisable to contact the Canada Revenue Agency (CRA) directly to obtain a definitive ruling. Contact information for non-resident businesses can be found here. (Information about the QST can be directed to Revenu Quebec.)