Canadian GST/HST Explained: The Complete 2025 Guide for Business Owners 

Canadian sales taxes are some of the most misunderstood—and most expensive—areas of running a business in Canada. Whether it’s knowing which rate to charge, when to charge it, or what you’re allowed to deduct, mistakes can cost thousands of dollars in penalties, interest, and irreversible assessments. 

This article expands on everything discussed in our latest YouTube video [insert video link] and gives you a clear, comprehensive overview of how GST/HST works, when you must register, how to file correctly, how to handle audits, and practical tips to stay compliant and save money. 

Understanding the GST/HST Maze 

Canada uses a value-added tax system known as GST (Goods and Services Tax). The federal rate is 5%, but many provinces combine their provincial sales tax with GST to create HST (Harmonized Sales Tax). 

Here’s how it breaks down as of 2025: 

Provinces with Only 5% GST 

• Alberta 

• Yukon 

• Northwest Territories 

• Nunavut 

HST Provinces 

• Ontario – 13% 

• Nova Scotia – 14% 

• New Brunswick, Newfoundland & Labrador, PEI – 15% 

Provinces with Their Own PST 

• British Columbia – 5% GST + 7% PST 

• Saskatchewan – 5% GST + 6% PST 

• Manitoba – 5% GST + 7% PST 

• Québec – 5% GST + 9.975% QST (administered separately by Revenu Québec) 

Tax rates do change periodically, so you should review your accounting system annually to ensure compliance. 

Place-of-Supply Rules: The #1 Source of Errors 

Most business owners assume they charge tax based on the province they operate in. 
Wrong. 

You charge tax based on your customer’s location, not yours. 

Examples: 

• Your location is Ontario → Your customer is in Alberta: Charge 5% GST 

• Your location is Ontario → Your customer is also in Ontario: Charge 13% HST 

• If customer location is unknown: Use your home province’s rate 

Taxable, Exempt, and Zero-Rated: Why It Matters 

Canada classifies sales—called supplies—into three categories: 

1. Taxable Supplies (Regular Sales) 

Standard GST/HST applies. 

2. Exempt Supplies 

No GST/HST is charged and you cannot claim ITCs. 
 

Examples: 

• Most healthcare services 

• Educational services 

• Legal aid 

• Financial services 

• Childcare 

• Residential rent 

3. Zero-Rated Supplies (0%) 

You charge no tax, but you can claim ITCs. 

 
Examples: 

• Basic groceries 

• Exports 

• Prescription drugs 

• Certain medical devices 

The Crucial Difference Between Zero-Rated and Exempt 

Both charge 0% tax, but: 

• Zero-rated: You can claim ITCs 

• Exempt: You cannot claim ITCs 

This distinction directly affects your profitability. For businesses with mixed sales (taxable, exempt, zero-rated), you must prorate your ITCs. 

When You Must Register for GST/HST 

For most businesses, registration becomes mandatory when worldwide taxable + zero-rated revenue hits $30,000: 

• In any single calendar quarter or 

• Over any four consecutive quarters 

Important nuances: 

• Worldwide means global sales count (e.g., Canada + U.S.). 

• The effective registration date is the date you exceed $30,000. 

• Some industries—like taxis and ride-share drivers—must register from the first dollar of income. 

Voluntary Registration: When It Makes Sense 

You can register before you’re required to. Good reasons include: 

• You want to claim ITCs on start-up costs 

• Your clients are mostly GST/HST-registered businesses 

• You want to appear more established 

However, if your customers are individuals, registering early increases your prices—so it becomes a strategic choice. 

Setting Up Your GST/HST Account 

Your account is tied to your Business Number in this format: 

123456789 RT0001 

When you register: 

1. Confirm your effective date 

2. Set up correct tax codes in your accounting software 

3. Create a separate bank account to store collected taxes (highly recommended) 

Filing Frequency 

Filing frequency depends on annual revenue: 

• Over $6M: Monthly 

• $1.5M – $6M: Quarterly 

• Under $1.5M: Annual (though instalments may apply) 

If you own multiple associated companies, filing frequency may need to match across them. 

Collecting, Filing, and Remitting GST/HST 

Once registered, you must: 

• Charge the correct rate 

• Issue compliant invoices 

• File accurately 

• Pay on time 

Your invoice must include: 

• Business name and address 

• Invoice date and number 

• Description of goods/services 

• Total and tax amounts 

• Your GST/HST registration number 

Missing details can cause CRA to deny your customers’ ITC claims, which never ends well for anyone. 

Filing Deadlines 

• Monthly & quarterly (corporations): Due 1 month after period end 

• Annual (corporations): 3 months to file, 2 months to pay 

• Annual (sole proprietors): File by June 15, pay by April 30 

You can file electronically through: 

• CRA My Business Account 

• NETFILE 

• Most accounting software platforms 

CRA Audits & Penalties: What You Need to Know 

CRA can review your return in three ways: 

1. Refund Review 

Triggered when you’re owed money—especially large or unusual refunds. 

2. Desk Audit 

CRA requests specific supporting documents, often for: 

• High ITCs 

• Strange variances 

• Sales that don’t match corporate tax filings 

3. Field Audit 

The most serious review. CRA examines your: 

• General ledger 

• Journals 

• Contracts 

• Bank statements 

• Accounting system setup 

CRA can audit up to 4 years back, or indefinitely if they suspect misrepresentation or fraud. 

Penalties & Interest 

Three main categories apply: 

1. Administrative Penalties 

E.g., filing manually when electronic filing is required. 

2. Late Filing Penalties 

1% of amount owing + 0.25% per month (up to 12 months). 

3. Interest 

Charged daily on all unpaid amounts. 

If you don’t owe tax (e.g., refund situation), late filing penalties don’t apply—but you should still file on time. 

Director Liability 

If you’re a director of a corporation, you’re personally liable for unremitted sales taxes. 

CRA can: 

• Garnish wages 

• Freeze bank accounts 

• Place liens on personal assets 

Sales tax is considered trust money, not company money. 

Fixing Problems 

If you identify issues before CRA contacts you: 

• Use the Voluntary Disclosure Program (VDP) 

• File adjusted returns 

• Work with an accountant or tax lawyer 

Being proactive can save enormous penalties. 

Practical Tips for GST/HST Success 

These tips can reduce your risk and workload dramatically. 

1. Maintain Excellent Records 

Keep documents for 6 years. 
Use digital storage systems like: 

• QuickBooks Online 

• Xero 

• Dext (highly recommended) 

2. Use Your Accounting Software’s Tax Modules 

Avoid manual spreadsheets. They’re error-prone and time-consuming. 

Set up: 

• Default tax codes 

• Proper classifications (zero-rated vs exempt vs out-of-scope) 

• Regular account reconciliation 

3. Consider the Quick Method 

Ideal for businesses with: 

• Low expenses 

• Under $400,000 in eligible revenue 

It simplifies filing and often reduces tax payable. 

4. Manage Cash Flow Wisely 

Use a separate bank account for tax collected. 
Set up pre-authorized payments if needed. 

5. Close Your Account If You No Longer Need It 

Even if you have no sales, you must file returns until the GST/HST account is formally closed. 

Final Thoughts 

Sales taxes in Canada are complex—and the consequences of mistakes can be severe. But with the right systems, awareness, and professional support, you can avoid penalties, reduce taxes legally, and keep your business running smoothly. 

To support you further: 

• We’ve created a free reference sheet with tax rates, deadlines, and links. 

• We’ve launched a new Facebook community for business owners. 

• And if you have questions about your specific situation, feel free to reach out. 

If you found this helpful, share it with another business owner—they’ll thank you for it.