The Scoop on Sales Tax
Hello All,
As we are firmly into tax season, I thought it would be useful to delve into the endlessly exciting topic of sales tax. I have several blog posts and videos about (GST/HST and QST) sales tax which I will link to below, including an FAQ about GST/HST and QST (which I have just updated). In this article, I will provide some context that might be useful.
Sales taxes in Canada in it’s original form was introduced during the Great Depression The federal government introduced a "manufacturer's sales tax" (MST) in 1920 to bolster their revenues during a challenging time. The tax was levied on the sale of goods by manufacturers and was primarily intended to be a hidden tax, that was indirectly paid by consumers.
In 1990, Brian Mulroney (RIP) and his government decided to change the way sales tax was charged by making it more transparent and efficient than the MST. They introduced the GST, a value-added tax (VAT), that was levied on most goods and services in Canada and was initially set at 7%. Over the years, the GST was reduced to 5% while some provincial governments sought to harmonize their own sales taxes with the GST thereby making the regulatory, reporting and remitting process significantly simpler.
A sales tax is essentially a consumption tax imposed by the government on the sale of goods and services i.e. the purpose of it is to be paid by the final consumer of a product or service. It is one of the most common forms of taxation worldwide and is a significant source of revenue for governments. In Canada, the sales tax is collected at every stage of production and distribution even though the tax is only meant for the final consumer. The implication of this is that businesses have to collect sales tax on their sales (with a few exceptions such as groceries and healthcare) and by the same token are also allowed to claim back sales taxes paid on expenses incurred since they are not the final consumers of the product or service. Consequently, every business that is registered for GST/HST (and QST) is acting as an agent of the government.
As it stands, Canada has one sales tax - GST- that applies to all provinces. Each province then determines its own sales tax rate and decides whether they want to harmonize it with the GST or have their own regime. Currently, Ontario, PEI, NB, NL and NS have a harmonized sales tax while SK, MT and BC have their own provincial sales tax process that is unconnected to the federal GST and has different rules. Alberta is the only province that has no provincial sales tax. And then there is Quebec, unsurprisingly, where the Quebec Sales Tax is part of the GST/HST regime, but charged and reported separately.
If you have sales from a business or self employment, you must familiarize yourself with the rules as they apply to you. And while it may not seem like it, the sales tax regime in Canada is fairly straightforward unlike the US where there are over 13,000 sales tax jurisdictions (many of which with multiple rates). Thankfully, we don’t have to deal with that.
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From the Blog
A couple of posts on GST/HST. Within each post you will find links to other posts that might be relevant.
Frequently Asked Questions About GST/HST By Business Owners
For those of you who are starting a new business, it is essential to know your tax obligations. Every business owner must report their net profits on a either their personal tax return if they are
Should you register for GST/HST and QST and What it Means to Be Zero Rated
When starting your new Canadian small business or launching into self employment, it is essential to determine whether you are required to register for GST/HST (and QST if you have a started a busines
How to File Your GST/HST Return Using CRA My Business Account
As of January 1, 2024 Revenue Canada will require all business (except for a handful of exceptions such as some financial institutions and charities) to file their returns electronically. This means
Business/Finance Stuff:
Amazon Bait and Switch Listings: Recently, it came to my attention that a book, that had just been released, had 200 plus reviews. This seemed like a lot for a newly released book (my books have been out for much longer and have much fewer reviews), so I delved further and saw that not only were the reviews in a different language (Spanish, from Mexico, for a specifically Canadian book) but also they were referring to a comic book (with actual pictures of the comic book) rather than a business book. This book, sadly is on the bestseller list, as many people don’t read the reviews if they see 200+ and an overall rating of 4.9. There are a couple of authentic reviews, which are 1 star, referring to the book’s content as superficial and out of date. Unfortunately, my report to Amazon has not yet resulted in any action. As you might be able to glean, I find this deeply objectionable. This article from Slate discusses the type of scam that is being perpetrated. My advice? Read the reviews before buying anything on Amazon that you are not already familiar with as you might find that they are for another product altogether.
Interest Rate Forecast: The Bank of Canada left the policy interest rate at 5%. The good news is that they did not raise the rate. The bad news is that they did not decrease it, as the inflation rate still does not support a reduction. There is speculation that the rate will be decreased either at the next meeting in April or the one after that in June. This article talks about the forecast, over the short term, from the perspective of economists.
Tax Stuff:
Internet business activities: If you earn income from one or more web pages or websites, you may need to report the web addresses and the income they earn. Regardless of your business structure, you might have different reporting requirements, however, all types of businesses are required to include this information on their tax returns.
What’s New for Tax: Article from CPA Canada outlining all of the changes for individuals, business and trusts plus some other important developments.
GST/HST Mandatory Electronic Filing: Starting January 1, 2024 it will be mandatory for most businesses to file their GST/HST returns electronically. As you can see from my blog post above and tutorial below this is fairly easy (and saves you the cost of a stamp for those still using the paper form)
QuickBooks Tutorials:
My latest tutorials include:
How to delete multiple bank transactions in QBO (and some guidance on deleting other transactions which cannot be bulk deleted unfortunately)
How to file your GST/HST return using CRA My Business Account
A variety of other tutorials can be found at my channel here
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Wishing everyone a non-taxing (insert groan emoji) weekend!
Ronika