If you’re a small business in Ontario, you must collect and remit the sales tax to the Canada Revenue Agency on a quarterly or annual basis. In our province, businesses add a Harmonized Sales Tax (HST) rather than a combination of provincial sales tax and federal goods and services tax (PST/GST).
The collection and remittance of HST impact Ontario’s businesses, including those that ship products into the province. How could it affect yours?
What Does The Harmonized Sales Tax Affect?
The HST is a 13% tax paid at the point of sale on most goods and services made in Ontario. While it consists of a 5% federal tax and an 8% provincial tax, you must list it as a straight 13%. Consumers do not have to pay HST on these exempt items:
- Basic groceries and qualifying foods (Excluding alcohol, soft drinks, candy, and snack food)
- Child care services
- Health, medical, and dental service provided by a licensed practitioner (This includes audiologists, chiropractors, chiropodists, optometrists, physiotherapists, psychologists, podiatrists, speech-language pathologists, and midwives.)
- Prescription drugs
- Most financial services
For items formerly exempt from Ontario provincial sales tax but not GST, you must provide point-of-sale rebates of the 8% portion of the HST, collecting only the 5% federal part of the HST payable on the sale of that item. It affects:
- Children’s clothing
- Children’s footwear (up to size 6)
- Qualifying prepared food and drinks sold for $4 or less
- Books, audiobooks, and newspapers
- Child car seats and booster seats
- Feminine hygiene products
- Air travel coming from Ontario and terminating in the U.S.
How Do I Charge HST?
Generally, the government categorizes goods into three groups:
- Taxable: You charge, collect, and remit HST. As a registrant, you may also claim Input Tax Credits (ITCs) – a credit for taxes paid on the inputs of your business – for HST paid to produce the goods and services.
- Zero-rated: You don’t charge HST; however, as a registrant, you can claim ITCs for the HST paid to produce goods or services. If you sell to businesses outside of Canada that are not registered, the sales would be zero-rated.
- Exempt: You do not charge HST or claim ITCs for any HST paid. Consult the list above for products and services that are exempt.
Charging HST on goods or services depends on a concept called “place of supply.” Because provinces have different sales tax rates – Ontario’s 13% is higher than P.E.I. and Nova Scotia but lower than others – “place of supply” determines the tax rates applicable on sales across the provinces. Specific rules apply whether a supply is made inside or outside a participating province, but in most cases, place-of-supply rules go by the address of the recipient of a service.
There are some exceptions to the place-of-supply rules. You can find a list of requirements and examples on the Canadian Revenue Agency website.
Charging HST on goods or services depends on a concept called “place of supply.” Specific rules apply whether a supply is made inside or outside a participating province. In most cases, place-of-supply rules go by the address of the recipient of a service.
Foreign purchasers of Canadian products do not have to pay HST, provided that any goods or services purchased only get used outside the country.
Why Do We Have HST In Ontario?
There are a few benefits to combining the PST and GST into one tax system. It lets businesses claim the entire sales tax amount while reducing administrative costs; of course, the exemptions and rebates one can claim may affect this overhead.
Some small business owners, especially those just starting, can find the HST hard to navigate. For experienced accountants and bookkeepers, HST can simplify the work related to collecting and remitting sales tax. It may even reduce costs for businesses – and, ultimately, the customers!