Does Your Business Need to Charge and Collect Sales Tax?

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December 6, 2019
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3 min article

Charging and collecting sales tax is part of your duty for doing business here in Canada. Customers pay GST/HST, while businesses are responsible for collecting the tax and holding the funds in a trust to then remit the tax to the CRA when it is due.

Holding funds in a trust means that you have to keep the funds apart from the operating funds of your business until you send them to the CRA. Think of it this way; you’ve billed your customer one amount for your business and another amount on behalf of the CRA. Let’s say a customer in Ontario buys something from you at the value of $100. You charge them $100 + $13 HST (13%) for a total of $113. $100 belongs to you and $13 you collect and hold in trust for the CRA, to transfer them the funds when GST/HST is due.

But not all businesses need to charge GST/HST, while most businesses do. When a company’s taxable revenue exceeds $30,000 in one calendar quarter or in four consecutive calendar quarters, then the business must register for GST/HST and begin charging sales tax.

 

The exception

Whether you charge and collect sales tax also depends on the products or services you are offering. They can be taxable, zero-rated, or exempt under the GST/HST rules. Most products and services in the market are taxable, and as a result, you need to charge sales tax. However, your business might operate in an industry where the things you sell are zero-rated or exempt, which means you don’t need to charge sales tax.

If a business does not charge sales tax for both zero-rated and exempt goods/services, what’s the point of differentiating between the two? As far as customers are concerned, there really isn’t any difference. In either case, your customer does not pay GST/HST. However, there is a big difference for the business. You can claim an Input Tax Credit to recover GST/HST paid on purchases only if they are made to provide zero-rated goods or services. You cannot claim Input Tax Credits to recover GST/HST paid on purchases related to making exempt goods or services. 

 

Doing business in another province

With the exposure we get thanks to the internet, it has become more common for businesses to serve outside of their local community. If you happen to do business with customers who are in a different province, then you need to know which sales tax rate to charge. The rate is primarily determined by the province in which the goods or services are made, a rule known as the the “place of supply.” 

When a business sells goods to another province, the sale of goods is generally deemed to have been made in a particular province if the legal delivery of goods to the buyer occurs in that province. For instance, say you’re in Alberta and you send a product through mail to a customer located in Ontario. The place of supply takes place in Ontario because this is where the legal delivery of goods have taken place. You will charge your customer Ontario HST rate of 13%. 

When a business sells services to another province, the place of supply for services are based on the home or business address of the recipient obtained in the ordinary course of business. Let’s say a wedding planning company, located in Ontario, provides wedding planning services for a wedding that will take place in Quebec. The home address of the recipient (the customer), obtained by the wedding planner is in Manitoba. As a result, the place of supply takes place in Manitoba and is subject to GST (not Ontario HST or Quebec QST). If instead, this exact same wedding service is planned for a recipient whose home address obtained by the service provider is in Ontario, the service would be subject to Ontario HST.

 

Doing business outside of Canada

If you sell goods or services to customers outside of Canada, you are generally not required to collect GST/HST, provided they take delivery of the goods or services outside of Canada, at their own place. These are considered exported goods and services which are generally zero-rated which makes the rate 0%, meaning you do not charge foreign customers any GST/HST.

 

Questions about your company's sales tax? Book a call with us and see how we can help.
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