By canadianmerchantservices August 12, 2025
In Canada, merchants have to deal with the regulation of GST, PST, and HST while making payments for services and goods. These provincially varying taxes are difficult to use in the right way.
It is important to learn about the differences between them and how they impact your payment system to avoid penalties and remain compliant. This guide includes all the information merchants must have on using the correct taxes and making payments effectively.
Canadian GST Basics: What You Should Know
Canadian GST is a federal tax on the majority of goods and services in Canada. First implemented in 1991, this tax is levied at each stage of production and distribution. Today, the GST is 5% and is collected by businesses from customers when they shop.
While the businesses have the obligation of collecting and remitting the tax to the Canada Revenue Agency (CRA), it’s the consumer who pays the price. At some places, a unified tax rather than GST is often utilized, namely Harmonized Sales Tax (HST), but the concept is the same.
Understanding HST in Canada: What It Means for You
The Harmonized Sales Tax (HST) is a combined tax that merges the provincial sales tax (PST) and the federal GST. It’s applied in some provinces to simplify the taxation process for both consumers and businesses. With HST, companies only have to collect one tax without having to manage both federal and provincial taxes individually.
HST rates differ by province. For example, Ontario has a rate of 13%, and Nova Scotia has a rate of 15%. Provinces with HST are New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island.
Understanding PST in Canada: A Guide for Consumers and Businesses
The Provincial Sales Tax (PST) is a tax levied by provinces individually on the sale of goods and services within that province. In contrast to the GST and HST, which are harmonized or federal taxes, PST is treated independently in each province. PST rate may also differ from province to province. For example, in British Columbia, PST is 7%, whereas in Saskatchewan it is 6%.
Some goods, such as prescription drugs and groceries, might be exempted from PST, but this is not in all provinces. It is necessary for both consumers and businesses to understand the rules of their province to remain in line with the law.
Responsibilities of Businesses in Canada Regarding Sales Taxes
Businesses in Canada are obligated to collect and remit GST, HST, and PST properly based on where they are located. Each province has its own regulations and tax rates, which means businesses must know these differences in order to avoid errors. If a business does not abide by these tax regulations, it may face penalties or interest fees.
They should also know about Input Tax Credits (ITCs), which enable them to claim back the GST or HST they have paid on business purchases. This arrangement ensures that the final consumer carries the cost of tax rather than businesses. They must track these compliance and security rules and credits to efficiently manage taxes and remain compliant.
Effect of Sales Taxes on E-Commerce Enterprises in Canada
E-businesses have special issues with handling sales taxes such as GST, HST, and PST, particularly with the expansion of online shopping. One major consideration is whether the business maintains a “nexus” or substantial presence in a province. If the business has a store or office, employees, or a lot of sales in a province, it might be required to register to collect PST within that province.
For HST and GST, any company earning more than C$30,000 in revenue needs to register and charge these taxes. On the other hand, in online business, the sales taxes depend on the destination of the goods or services, so companies need to charge the appropriate tax rate based on where the customer is situated.
For instance, if an Alberta business sells to a customer in Ontario, it needs to charge the 13% HST rate. Taxation of digital products and services, like e-books, software, or video streaming, also differs.
A few provinces impose PST on digital items, while others exempt them, and offshore companies selling digital services to Canadian buyers need to register and pay GST/HST. It is important for e-commerce companies to be aware of these regulations to remain compliant with tax laws.
Sales Tax Obligations for Digital Platform Operators in Canada
Both resident and foreign platform operators in Canada are required to charge GST/HST on different sales, such as business-to-consumer (B2C) digital items, cross-border services, and rentals of short-term accommodations. Provincial conditions are different: British Columbia levies PST on retail transactions, local accommodations, and some services.
On the other hand, Quebec levies QST on digital products and short-term rentals; however, Manitoba levies RST on all retail transactions, except those on leased vehicles; and Saskatchewan levies PST on electronic distribution services and accommodation.
Also, some areas will charge Municipal and Regional District Tax (MRDT). Platform operators are required to register with the CRA for GST/HST when taxable supplies exceed C$30,000 in 12 months. Cross-border sales facilitated by non-resident operators may register under a simplified system. Rules for tax registration vary in each province, so companies must remain compliant in their markets.
Recognizing Marketplaces and Tax Rules in Canada
In Canada, websites or apps are commonly called “marketplaces”. The sites can be liable for collecting a sales tax, depending on their function in a transaction. The government categorizes these websites into two broad groups: distribution platform operators, which facilitate selling digital goods, services, and products, and accommodation platform operators, which involve short-term bookings of rentals.
Platform operators are defined as businesses that govern significant aspects of the transaction between buyers and sellers. Not all online platforms are subject to these provisions—those that simply list goods or serve as payment processors are not defined as platform operators.
Defining The Relevant Terms
Various provinces use different terms for marketplaces. For example, in British Columbia, they call them “marketplace facilitators” and encompass those that facilitate selling goods or services, such as accommodation, but exclude those, such as legal services.
On the other hand, Manitoba utilizes the term “online sales platform” for websites and apps that facilitate retail sales and payment handling. Nearly so, Quebec similarly uses the federal government’s definitions using the distribution platform and accommodation platform.
In addition, Saskatchewan divides platforms into three types: marketplace facilitators (payment collectors for sales), online accommodation platforms (facilitating accommodation rentals), and electronic distribution platforms (websites or apps selling products or digital products).
These different definitions result in each province having a bit of a different rule, but overall, the concept is that platforms that facilitate transactions usually collect sales tax.
Tax Registration for Platform Operators in Canada
Platform operators in Canada are required to register with the CRA for GST/HST when their total taxable sales reach C$30,000 in a 12-month period. These include both third-party and direct sales made through the platform.
Non-resident platform operators selling goods in Canada must also register. Non-resident operators selling accommodation or cross-border digital services have a simplified registration requirement for GST/HST, provided that their sales cross the C$30,000 threshold.
For provincial sales taxes, Quebec makes it mandatory for both Canadian and non-resident platform operators to register if taxable sales are more than C$30,000. On the other hand, British Columbia mandates registration if taxable sales in the previous 12 months or projected taxable sales for the subsequent 12 months are more than C$10,000.
However, Manitoba and Saskatchewan do not have a streamlined registration mechanism, so the operators are required to register if they sell taxable goods in these provinces.
Tax Filing Obligations of Platform Operators in Canada
Platform operators who are registered for simplified GST/HST have to file a simplified return, whereas others who are registered for regular GST/HST have to file normal returns via Form GST34-2. When platform operators enable sales of short-term accommodation or goods already within Canada, there can be additional federal requirements.
Beginning in 2024, new regulations mandate platform operators to report more detailed information on sellers, such as their tax ID number and quarterly total earnings. Accommodation platforms are also asked to report rental days and addresses of properties.
For provincial sales tax, Manitoba, Saskatchewan, and British Columbia platform operators are required to file periodic returns. Quebec is subject to the same federal rules and is required to file periodic or simplified QST returns and report further information regarding the sale of goods in Quebec and short-term rentals.
Factors That Determine GST/HST Rates in Canada
In Canada, the GST/HST rate you charge is determined by three primary considerations, which are the type of supply, the place of supply, and to whom you’re selling. Your type of supply is what the product or service is taxed as, whether it’s taxable, zero-rated (groceries and prescription medication), or exempt (medical services and long-term rents).
The location of supply dictates the tax rate to be applied in accordance, so various provinces may have varying rates. Finally, who you supply to makes a difference—some parties, such as government representatives or others, are exempt from GST/HST. Knowing these things ensures you charge the correct tax and are properly following Canadian tax regulations.
What Is Input Tax Credit (ITC)?
Input Tax Credit (ITC) is a means by which Canadian businesses can recover their GST or HST paid on business purchases of goods and services. In essence, it reduces the amount you owe in taxes by enabling you to claim back the sales tax you paid on eligible business expenses.
In order to claim ITC, you have to register for a GST/HST account with the Canada Revenue Agency (CRA) and maintain records of the purchases, e.g., invoices or receipts.
You have four years from the original return due date to claim ITC, although companies with more than $6 million in revenue can have a shorter period.
Qualifying business expenses are rent paid for offices, rental of equipment, transportation costs, and even home office costs, but not personal expenses such as meals, entertainment, or some capital expenditures such as patents and franchises. So make sure to separate personal and professional finances.
What Is The Gst/hst Return Report?
The GST/HST return report is a tax return report that Canadian businesses are required to submit to the Canada Revenue Agency (CRA) to report on their GST/HST collections and payments. The form contains fields where you input basic business information like your name, business number, reporting period, and due date.
Next, you must input details such as total sales and revenue, amount of GST/HST collected, and any input tax credits (ITCs) recoverable for business purchases. You must also account for any bad debts or rebates to which you may be entitled.
The form assists in calculating whether one is entitled to due taxes or entitled to a refund. It helps businesses remain compliant with tax laws and maintain their tax obligations in an orderly manner.
When Do I Need to File My GST/HST Return?
Your deadline to file your GST/HST return varies based on how frequently you report.
Here’s the lowdown:
- Monthly: If you report every month, your deadline for filing and paying is due one month after the reporting period. For instance, if your reporting period is June 30, your deadline to pay and file is July 31.
- Quarterly: For quarterly reporting, both the payment and filing dates are one month from the end of the report period. Therefore, if your period closes on March 31, both payment and filing are due April 30.
- Annually (General): If you report annually (other than for individuals with a December 31 year-end), your due date is three months after the end of your year. For instance, if your year is March 31, you will file by June 30.
- Annually (For Those with December 31 Fiscal Year-End): For those with a December 31 fiscal year-end and business income, the deadline is June 15, but payment is made by April 30.
If your deadline is on a weekend or public holiday, the CRA will consider your return as timely if it is received by the next business day.
How to Calculate Tax in Canada
In Canada, taxes are split between federal and provincial levels, so it’s important to know which tax rate applies to your sales. There are three main types of taxes: GST (Goods and Services Tax), PST (Provincial Sales Tax), and HST (Harmonized Sales Tax).
Let’s start with GST, which is a federal tax charged throughout Canada at 5%. GST is a value-added tax, which means it’s charged at every step in production and distribution.
Next, we have PST, which is charged by provincial governments, and each one of them sets its own rate. British Columbia, for instance, charges 7% PST on top of 5% GST.
Lastly, HST is a blended tax, federal and provincial, employed in provinces such as Ontario and Nova Scotia. The rate is higher (typically 13-15%), with both the federal and provincial portions of the tax.
Here’s a brief rundown of tax rates by province:
When computing for tax, the province of delivery or billing address of the buyer will dictate what rate of tax to use. For instance, if you are selling to an individual in Ontario, you would charge HST at 13%. But if you are selling to an individual in British Columbia, you would charge 5% GST and 7% PST.
Conclusion
Navigating the complexities of PST, GST, and HST is essential for merchants operating in Canada. By understanding each tax’s application based on location and transaction type, businesses can ensure compliance and avoid unnecessary penalties. Properly integrating these taxes into payment systems helps streamline operations and enhances accuracy, making it easier to manage both sales and taxes efficiently.
FAQs
What is the difference between GST, PST, and HST in Canada?
GST is a federal, PST is a provincial, and HST is a combination of both the federal and provincial taxes in some areas.
Are all provinces charging the same rate of sales tax?
No, the rate of the sales tax differs by province, with the provinces imposing GST, PST, or a combination thereof (HST).
Who is liable for collecting GST/HST?
Businesses are responsible for collecting GST/HST on taxable supplies and services and paying it over to the CRA.
Is GST/HST payable on digital products?
Yes, digital products and services are generally subject to GST/HST, depending on the province and the seller’s registration status.
Why do I need to charge the correct sales tax?
To charge the correct sales tax, you may be subject to penalties, interest, and additional tax liabilities from the CRA.