Canadian sales taxes are among the most complex aspects of running a business in Canada. Even seasoned accountants can find themselves second-guessing whether a transaction falls under the 5% GST, 13% HST, or 9.975% QST. The cost of getting it wrong can be substantial and often irreversible.
At its core, the Goods and Services Tax (GST) is a 5% federal tax similar to a value-added tax (VAT). But many provinces combine it with their own sales tax, creating the Harmonized Sales Tax (HST). This means one rate, one filing and one payment to the Canada Revenue Agency (CRA). Provinces like Ontario (13%), Nova Scotia (14%), and the other Atlantic provinces (15%) follow this approach.
However, not every province plays along. British Columbia, Saskatchewan, and Manitoba maintain separate Provincial Sales Taxes (PST), while Quebec applies its own Quebec Sales Tax (QST) of 9.975%, collected by Revenu Québec rather than the CRA.
“You charge tax based on your customer’s location — not your own.”
Understanding where to apply each rate is crucial. A business in Ontario selling to Alberta must charge 5% GST, not 13% HST. If you don’t know the customer’s location, defaulting to your own provincial rate is the safest approach.
The CRA also divides supplies into three categories:
While both exempt and zero-rated supplies result in no tax being charged, only zero-rated sales allow businesses to claim Input Tax Credits (ITCs), in other words deductions for the sales tax paid on business purchases. Exempt suppliers cannot claim ITCs, meaning their expenses often become non-recoverable costs.
“Zero-rated and exempt supplies may look alike — but only one earns you tax credits.”
Not every business must register for GST/HST immediately. The threshold is $30,000 in worldwide taxable and zero-rated revenues in any single quarter or over four consecutive quarters. That figure includes income earned outside Canada, such as U.S. sales.
Some businesses however, such as Taxis and ride-share operators, must register from their first dollar of revenue. No exceptions.
Voluntary registration can make sense for businesses with high start-up costs or those selling mainly to other registered businesses. Registration allows access to ITCs, enabling refunds for sales taxes paid on expenses. But if your customers are consumers rather than businesses, adding GST/HST increases your prices and may hurt competitiveness.
Once registered, a business must collect and remit sales taxes on all taxable sales until the account is formally closed.
Your CRA GST/HST account uses a nine-digit Business Number (BN) ending in “RT”. For example, 1234 56789 RT0001. Registration can be completed online, by phone, or through an accountant.
“The sales tax you collect is not your money — it belongs to the government.”
To stay compliant:
Your reporting frequency will depend on your annual revenue:
After registration, precision is essential to ensure you keep in line with the CRA. For products, charge tax based on the shipping destination. For services, it’s the customer’s business location. For digital goods, it’s where the customer resides.
Invoices must include your legal business name and address, invoice date and number, description, price, the applicable tax rate or amount, and your GST/HST registration number. Missing details can cause CRA to reject invoices, preventing customers from claiming their ITCs.
Corporate filers have one month after the period ends to submit returns if filing monthly or quarterly. Annual filers have three months to file but only two months to pay. Sole proprietors (those who aren’t incorporated can file until June 15 but must pay by April 30, even before filing.
“CRA can decide what you owe if you don’t file on time.”
Returns are filed electronically via My Business Account or NETFILE. You can make payments through online means, set up pre-authorized payments or go through your bank. If you’re due a refund, the CRA may request invoices or bank statements before releasing funds, particularly for new filers or large claims.
Few phrases strike fear in business owners like “CRA audit.” But understanding how audits work can reduce risk and penalties.
CRA reviews GST/HST filings in three ways:
The CRA can audit up to four years back from you last assessment. The number of years could be greater if fraud or willful neglect is suspected. The most common issues are missing records, incorrect tax rates, or misclassified supplies are frequent findings.
Penalties for this can include:
“Unpaid GST/HST can follow you personally — even beyond your corporation.”
Corporate directors are personally liable for unremitted GST/HST. CRA treats these funds as trust money. Due to this, they allow wage garnishment or liens on personal property all outside of your corporate assets. However, the CRA does offer what’s called the Voluntary Disclosure Program. This offers relief if issues are disclosed before CRA contact and often results in removing penalties or interest.
Meticulous record-keeping is non-negotiable. Keep all source documents for at least six years, even if stored digitally. Cloud accounting platforms and tools like Dext can simplify scanning and archiving receipts.
Use the sales tax modules in accounting software like QuickBooks Online or Xero. Avoid tracking taxes manually in spreadsheets and distinguish clearly between “Out of Scope,” “Zero-Rated,” and “Exempt” transactions. Reconcile GST/HST accounts frequently and lock reporting periods once filed.
For smaller businesses with less than $400,000 in annual revenue, the Quick Method may reduce complexity. Under this method, you still charge full GST/HST rates but remit a lower percentage to CRA, typically around 8.8% for Ontario. It eliminates detailed ITC tracking and can result in savings for businesses with low expenses.
“Sometimes the Quick Method saves money — sometimes it doesn’t. Check before switching.”
Cash-flow management is another critical area. Keeping a dedicated sales tax account prevents accidental spending of government funds. For exporters or zero-rated sellers, filing more frequently can accelerate refunds.
Finally, close your GST/HST account if it’s no longer needed. Inactive accounts still require returns, and failure to file can lead CRA to issue artificial assessments — often incorrect, but still enforceable until corrected.
From registration thresholds to audits, Canada’s sales tax system is a maze that demands vigilance. By mastering the essentials – knowing which rate to charge, how to manage ITCs, and when to file — businesses can protect themselves from unnecessary costs and CRA scrutiny.
“Understanding sales tax fundamentals puts you ahead of most business owners.”
Staying organized, proactive, and informed ensures compliance while freeing up time to focus on what matters most, running and growing the business.