The taxation system of Canada has evolved over the years alongside the country. The introduction of GST and QST was strategic as the two types of tax emerged as a solution to the country’s economic issues at different times.
However, GST and QST are not the only tax types available in Canada; there are also HST and PST. This article will discuss these tax types: GST, HST, PST, and QST, in detail – everything you need to know.
1. The Goods and Services Tax (GST)
GST applies to most goods and services produced in Canada, and the GST rate is 5%. GST combines with PST to form a Harmonised Sales Tax (HST) rate in most provinces where local PST is in effect.
The Canadian government makes provisions for individuals and families with low and modest incomes through the goods and services tax/harmonized sales tax (GST/HST) credit. This set of persons receives a quarterly payment to make up for the GST or HST that they pay.
According to the CRA, you must be a taxable resident of Canada to qualify for the tax credit, and at least 1 of the following applies:
- You are 19 years of age or older;
- You have (or previously had) a spouse or common-law partner; or
- You are (or previously were) a parent and live (or previously lived) with your child.
2. The Provincial Sales Tax (PST)
PST applies when there’s a purchase of a taxable good or service in the provinces of Saskatchewan, Manitoba, and British Columbia. PST rate is 6%.
PST applies to:
- Goods brought, sent, or delivered into B.C. for use in B.C
- The purchase or lease of new and used goods in B.C
- Gifts of vehicles, boats, and aircraft
- Purchase of services to goods such as vehicle maintenance, software, accommodation, furniture assembly, computer repair, and legal services
- Telecommunication services, including digital, internet services, and electronic media content.
Exempt goods include:
- Food for human consumption – groceries and prepared food
- Prescription medications and household medical aids
- Books, newspapers, and magazines
- Bicycles
- Children-sized clothing
3. The Quebec Sales Tax (QST)
QST is a tax collected on most goods and services consumed or imported into Quebec. Quebec emerged as a smart remedial idea for the Canadian government to get the recalcitrant citizens into the GST wagon. By introducing a destination-based VAT, they will pay the GST together with the QST.
When a citizen or business pays QST, the GST is deducted and paid to the federal government. After subtracting the GST, the QST is calculated at 9.975% of the selling price.
Before now, QST only affected the businesses that were resident in Quebec. Non-residents could register if they were actively involved in business in the state or had a permanent establishment. However, this was revised to include non-residents by requiring them to provide a certain amount of specified taxable supplies in Quebec to consumers.
Goods are zero-rated if exported outside Quebec. Exports of services to non-residents of Quebec are also zero-rated unless the sale is made to a non-resident who is in Quebec at the time of order of the service.
Imports of goods into Quebec are subject to both GST and QST. Goods imported from elsewhere in Canada by Quebec residents who are not registrants are subject to QST. However, QST does not apply if the person importing the goods is a registrant for QST purposes and the imports are exclusively for commercial activities.
4. The Harmonized Sales Tax (HST)
HST combines a portion of the provincial sales tax and the GST in some provinces. In such provinces, HST adds to GST to make up 15%, except for Ontario, which pays 13%. HST tags along with GST, and so does its credit.
To receive the GST/HST credit, you have to be a taxable resident of Canada, and at least 1 of the following applies:
- You are 19 years of age or older;
- You have (or previously had) a spouse or common-law partner; or
- You are (or previously were) a parent and live (or previously lived) with your child.
Quick Tips On Saving Taxes in Canada
Tax Credits
Tax credits have a way of reducing what you owe to make you pay less. Some tax credits are refundable, while some are not. The most common refundable tax credit is the GST/HST payment, which enables people on a low income to get back what they pay in GST.
A non-refundable tax credit is another tax mountain leveller, reducing the amount of tax payable. It can actually reduce your tax to zero, but this works for those who owe taxes. Here’s a practical example of how non-refundable tax credit works:
If you owe $4000 in taxes and receive a non-refundable tax credit for $5000, your taxes are automatically taken care of. However, you will not get the additional $1000. Thankfully, you can access a tax credit both at the federal and provincial levels.
Other non-refundable tax credits include medical expenses, tuition, interest on student loans, Employment Insurance and Canada Pension Plan deductions, etc.
Tax Deductions
Tax deductions are another smart way of paying less on tax. They reduce your gross income, enabling you to fit into a lower tax bracket and consequently attract a lower tax rate. There are many kinds of tax deductions, such as the Registered Retirement Savings Plan (RRSP), pension adjustment for pension contributions, child care expenses, charity donations, etc.
Need Help With Taxes?
Taxation in Canada is not complicated; you just need to learn how the system works. You can consult a tax advisor for expert guidance on how to handle your taxes to avoid liabilities. As a business owner in Canada, it is necessary to acquaint yourself with the taxation system in the country. And you may not need to go through the stress of contacting the CRA directly to know what the tax requirements look like. Tax advisory services are ready options you could always use. They don’t just keep you updated with the tax rates and requirements; they also help you manage your tax effectively.
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