Harmonized Sales Tax – HST

Harmonized Sales Tax – HST

What is harmonized sales tax?

The harmonized sales tax (HST) is a combination of the Canadian goods and services tax (GST) and the provincial sales tax (PST) that applies to taxable goods and services. By merging the federal sales tax with the provincial sales tax, the participating provinces have harmonized the two taxes into a single federal-provincial sales tax.

Explanation of Harmonized Sales Tax

The HST is a consumption tax paid by the consumer at the point of sale (POS). The seller or seller collects the tax revenue from consumers by adding the HST rate to the cost of the goods and services. They then remit the total tax collected to the government at the end of the year.

The harmonized sales tax (HST) has been implemented by several provinces of Canada in order to set up a more efficient tax system that would improve the competitiveness of businesses in the participating regions.

The provinces of New Brunswick, Nova Scotia and Newfoundland and Labrador applied the HST in 1997. On July 1, 2020, the provinces of Ontario and British Columbia (BC .) joined the program. However, three years later, British Columbia ended the HST program and restored its provincial sales tax (PST) system after it is estimated that 55% of the residents of the province voted to end the HST. In 2020, Prince Edward Island joined the participating regions and replaced its provincial sales tax (PST) with the harmonized sales tax (HST).

The administration and collection of the HST is provided by the Canada Revenue Agency (CRA), which is the tax division of the federal government. Vendors and vendors are generally responsible for receiving the consumer tax and remitting it to the CRA annually or semi-annually. The CRA allocates the provincial portion of the HST to the respective provincial government. The CRA does not collect provincial sales taxes.

Provincial differences

Not all provinces want to apply the HST to their tax systems, and these non-participating states still use the Goods and Services Tax (GST) or Provincial Sales Tax (PST) separately. Since 2020, British Columbia (BC) and Saskatchewan have used the PST system in addition to a separate GST. Quebec and Manitoba also use the same system as British Columbia and Saskatchewan, only that the provincial sales tax in the two provinces is called the Quebec sales tax (QST) and the retail sales tax ( TVD), respectively.

Residents of these four provinces would be subject to federal GST and provincial tax on their purchases. For example, Saskatchewan has a provincial sales tax rate of 6%. A consumer who purchases, say, a computer for $ 1,000 in British Columbia would have a total bill of $ 1,000 + (PST 6% x $ 1,000) + (GST 5% x $ 1,000) = $ 1,110.

Several provinces apply the federal GST only to taxable goods and services. The provinces of Alberta, the Northwest Territories (NWT), Nunavut and the Yukon have no provincial sales tax, which means that a consumer is only taxed at 5% GST on purchases.

The table below shows the sales tax applied in each of the Canadian provinces:

Registration and Collection of Harmonized Sales Tax (HST)

It is the responsibility of Canadian business owners to collect and remit the HST. To start increasing the sales tax, the commercial operator must register for a GST / HST account with the CRA or Revenu Québec (if he is a resident of Quebec), provided that the business achieves total income of $ 30,000 or more per year. Business owners whose businesses earn less than $ 30,000 can still register voluntarily as they can claim input tax credits on the goods and services they purchase in the course of operating the business. business.

While many retail products and services are subject to HST, some are zero-rated or tax-exempt. A zero-rated product or service is one that has a 0% HST tax rate. These include products like basic groceries, prescription drugs and many agricultural and fishing products. A tax-exempt product or service is exempt from sales tax. Examples of non-taxable services are child care, dental, medical and health services. A consumer can claim input tax credits for zero-rated products, but not for tax-exempt services.

Customers outside of Canada who purchase products in Canada do not have to pay HST provided that the goods or services purchased are only used outside of the country. However, non-residents of Canada, such as tourists, are required to pay the HST and, in some cases, may be eligible for a HST rebate.

An interprovincial commercial transaction will administer the sales tax that is exercised in the province of the buyer. The supply of taxable goods to a participating region is subject to HST, while the supply to a non-participating region is subject to GST. This rule is known as the place of supply rule. For example, a business owner in British Columbia who sells products delivered to Ontario must collect 13% HST. However, if the rolls were reversed, the Ontario business seller would only have to charge 5% GST (excluding PST) if he sold and delivered goods in British Columbia.

Effect on taxpayers

There is always an ongoing debate about the impact of the HST on consumers and taxpayers. Critics argue that the HST results in a shift of the tax burden from businesses to consumers, which will increase the costs of consumer goods. This higher cost would in turn lower the real income of consumers. Supporters of the HST continue to oppose these views, arguing that the HST would create tax savings for the participating provinces and residents. They claim that the implementation of the HST system will reduce the cost of doing business, which would actually translate into lower prices for consumer goods and services.

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