Lloyd Lindsay CA CMC, Goods and Services Tax, Harmonized Sales Tax

Goods and Services Tax

Effective January 1, 1991, Canada's Federal government began levying the Goods and Services Tax (GST) – a multi-layered VAT (Value Added Tax) at a rate of 7%. Starting July 1, 2006, Prime Minister Harper (as seen in the picture to the right) reduced the general rate to 6%, and then starting January 1, 2008, he reduced it to 5%.

The tax is levied on most goods and services with relatively few exemptions. Sales fall into one of three categories:

Taxable at 5 percent
Taxable at 0 percent (Zero rated sales), and
Exempt

Taxable Sales (5 or 0 percent)

Businesses that sell taxable goods and services receive an Input Tax Credit that reduces the amount of GST they send to the government.

The Input Tax Credit is merely the GST that businesses pay on their purchases. And, if the Input Credit is greater than the GST a business charges for a period, the Federal government refunds the excess. This can easily happen when a business makes large equipment and inventory purchases, and their total amount exceeds the company's sales for that period. Examples of taxable sales:

5% - Sales and repairs of computers, clothing etc.
0% - Exports and the sale of food (but not restaurant meals).

Exporters may often receive GST refunds because they pay GST on their purchases, but charge 0% on their sales.

Exempt Sales

Businesses selling exempt goods and services charge no GST and get no Input Tax Credit for the GST on their purchases. Examples: Medical and dental services.

Opting Out

Businesses with less than $30,000 of annual taxable sales have the option to not register for the GST. If they choose to not register, they charge no GST, pay the GST on their purchases, and receive no Input Tax Credits. On the other hand, a small business may choose to register and charge the GST to prevent its customers from learning that it has less than $30,000 of annual sales.

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Harmonized Sales Tax

The Federal government offered the Provinces an arrangement to end their sales taxes and participate in the GST at a combined rate of 13% (originally it was 15%).

It promised to collect the combined tax and to refund the extra 8% to participating Provinces. The Harmonized Sales Tax (HST) would follow the same rules as the GST, except that the rate in their Province would be 13%. To date, only three Provinces have adopted the HST:

Nova Scotia
New Brunswick, and
Newfoundland

If you need more advice or help regarding the GST, please consider my firm and contact us.