The MagazineCanada

It’s everywhere. On your morning coffee receipt, on the invoice for a new laptop, on the bill from your accountant. It’s a small percentage, a line item you’ve probably gotten so used to seeing that you barely even notice it anymore. But what is it, really? We’re talking about the Goods and Services Tax, or GST. It’s one of the most fundamental, and most misunderstood, parts of Canadian commerce. It’s the quiet engine of the country’s tax system, humming along in the background of nearly every purchase we make.

For some, it’s just a few extra cents on a purchase. For a small business owner, it’s a whole system of rules, registration numbers, and tax returns that can feel genuinely overwhelming. The goal here is to pull back the curtain. To demystify GST completely, you can visit canada.ca for detailed information. This isn’t just for the accountants and the tax lawyers. This is a guide for everyone—the entrepreneur trying to figure out their obligations, the student learning how this country works, the family trying to budget, and anyone who’s ever looked at a receipt and wondered, “Where does that money actually go?” We’re going to break it down, piece by piece, until it makes perfect sense.

What is GST in Canada? A Simple Definition

At its core, the Goods and Services Tax (GST) is a 5% federal tax applied to the sale of most goods and services in Canada. Think of it as a national consumption tax. If you buy something or pay for a service within Canada, chances are the GST is part of the final price.

This tax wasn’t always around. It was introduced on January 1, 1991, to replace a clunky, hidden, and inefficient 13.5% Manufacturer’s Sales Tax (MST). The old MST was problematic because it was applied at the manufacturing level, meaning the tax got embedded in the cost of a product early on, and then the price was marked up, so consumers were effectively paying a tax on the tax. It was a mess. The GST was designed to be more transparent and fair, helping to avoid any penalties for non-compliance.

The entire system—the rules, the collection, the refunds—is managed by the federal government’s tax authority, the Canada Revenue Agency, universally known as the CRA. They’re the ones who set the guidelines and process the paperwork that keeps the whole thing running.

The Core Concepts: How GST Actually Works

Okay, so it’s a 5% tax. Simple enough. But the genius—and the complexity—of the GST lies in how it’s collected. It’s not just a simple tax tacked on at the end of a sale. It’s what’s known as a “value-added tax,” or VAT, a system used by more than 160 countries around the world. The name sounds academic, but the concept is pretty straightforward when you see it in action.

Value-Added Tax Explained: The Journey of a Product

Let’s forget about taxes for a second and think about a simple wooden chair sold in a retail store. It doesn’t just appear out of nowhere. It goes on a journey.

1. The Logger: a business that may apply for Input Tax Credits. A logging company cuts down a tree and sells the raw timber to a lumber mill for $50. On that $50 sale, the logger charges 5% GST, which is $2.50. The logger sends that $2.50 to the government.
2. The Mill: The lumber mill buys the timber for $50 + $2.50 GST. The mill processes the timber into finished lumber and sells it to a furniture maker for $150. The mill charges 5% GST on its sale, which is $7.50. Now, here’s the magic. The mill doesn’t send the full $7.50 to the government, which may apply to their tax obligations. It gets to subtract the $2.50 it already paid in GST when it bought the raw timber. So, it only sends the difference ($7.50 – $2.50 = $5.00) to the CRA.
3. The Furniture Maker: The furniture maker buys the lumber for $150 + $7.50 GST. They build the chair and sell it to a retail store for $300. The maker charges 5% GST, which is $15.00. And just like the mill, the furniture maker gets to deduct the GST it paid on its supplies. They send the government $15.00 minus the $7.50 they paid, which is $7.50.
4. The Retail Store: The store buys the chair for $300 + $15.00 GST. They put it on the showroom floor and sell it to you, the final customer, for $500, which includes taxes paid on purchases used. The store charges you 5% GST, which is $25.00. The store sends the government $25.00 minus the $15.00 it paid, which is $10.00.
5. You, the Consumer: are responsible for understanding whether your purchases are subject to GST or exemptions. You pay $525, which may apply to the total including remitting taxes. You are the final link in the chain. You can’t claim back the $25 in GST you paid.

Now, let’s look at what the government received. $2.50 (from logger) + $5.00 (from mill) + $7.50 (from maker) + $10.00 (from retailer) = $25.00.

This is the entire point. The government gets the full 5% of the final sale price ($500), but the tax burden is spread out along the supply chain. Every business in the chain acted as a tax collector for the government on the “value” they added, but they were made whole by getting a credit for the tax they paid on their own inputs. This system of getting credits for the GST you pay on business expenses is the absolute cornerstone of the system. It has a special name: Input Tax Credits. We’ll get into those in a lot more detail later.

The Role of the Canada Revenue Agency (CRA)

The Canada Revenue Agency, or CRA, is the administrator of the whole show. Think of them as the central processing hub for all this GST activity. Their job is to:

• Administer Registration: They handle the process for businesses to get a GST/HST account number, which is required to start collecting the tax.
• Process Returns: Businesses have to regularly report how much GST they’ve collected and how much they’ve paid. This is done on a GST/HST return. The CRA processes these returns.
• Manage Remittances and Refunds: If a business has collected more GST than it paid, it has to send (or “remit”) the difference to the CRA. If it paid more than it collected (which can happen for startups buying a lot of equipment, or for exporters), the CRA sends them a refund.
• Enforce Compliance: They conduct audits and ensure everyone is playing by the rules laid out in the federal Excise Tax Act.

Essentially, every dollar of GST collected in the country eventually funnels through the CRA.

Who is Required to Register for, Collect, and Remit GST?

Not every single person who sells something has to get involved in this system. You don’t need to charge GST if you sell your old bike on Kijiji. The government has set a threshold to keep very small operators out of the system. This is the “small supplier” rule, which allows businesses with low revenue to avoid the need to register for GST.

In general, you are required to register for a GST/HST account if you provide taxable goods and services in Canada and your total worldwide revenues from those activities are more than $30,000 over any four consecutive calendar quarters.

Once you cross that threshold, you are no longer a small supplier and you must register. You then get a Business Number (BN) with a special GST/HST program account identifier. From that point on, you are a “registrant,” and you are legally obligated to charge, collect, and remit the GST/HST on all your taxable sales.

You can also choose to register voluntarily even if you make less than $30,000. Why would anyone do that, especially when the federal goods and services tax applies to many daily purchases? Because if you aren’t registered, you can’t claim Input Tax Credits for the GST you pay on your business expenses related to imported goods. If you’re starting a business and buying a lot of tools, equipment, or supplies, registering voluntarily lets you get that GST back as a refund, which can be a huge help for cash flow.

GST vs. HST vs. PST: Decoding Provincial Sales Taxes

This is where things can get a little confusing for people, especially regarding the application of the federal goods and services tax. The 5% federal GST is the foundation, but it doesn’t operate in a vacuum. Most provinces also have their own sales taxes, and they interact with the GST in one of two ways. This gives us three different scenarios you might see on a receipt, depending on where you are in Canada, especially concerning the GST with their provincial sales tax.

The 5% Federal GST: The Baseline

In some provinces and all three territories, things are simple. There is no provincial sales tax at all, making it easier for businesses to assess their costs. You just pay the 5% GST on taxable goods and services, and that’s it. It’s clean and straightforward.

The jurisdictions where you’ll only find the 5% GST are:

• Alberta
• British Columbia (though they have a PST, it’s separate—more on that below)
• Manitoba (also has a separate PST)
• Saskatchewan (also has a separate PST)
• Quebec (has its own QST, which acts like a separate PST)
• Yukon
• Northwest Territories
• Nunavut

Wait, why are BC, Manitoba, Saskatchewan and Quebec on that list? Because in those provinces, the provincial tax is a completely separate system. So when you see a bill, you see one line for GST (5%) and a second line This is the basis for calculating the tax for the provincial tax on supplies of goods. So technically the federal GST still operates as its own distinct 5% tax there. Alberta and the territories are the only places with no provincial sales tax at all.

Harmonized Sales Tax (HST): The All-in-One Tax

Five provinces, mostly in Atlantic Canada plus Ontario, decided to simplify things. They said, “Instead of having two separate tax systems, let’s just blend them together into one, simplifying the importation process.” This blended tax is called the Harmonized Sales Tax, or HST.

The HST combines the 5% federal GST with a provincial portion, which applies to supplies of goods and services. The whole thing is administered by the CRA, so businesses in these provinces only have to deal with one tax agency and one set of rules. It makes life much simpler for them. When you look at a receipt in an HST province, you don’t see “GST” and “PST.” You just see one line item for “HST.”

The HST rates vary because each province chose a different provincial rate to add on top of the 5% GST.

Province	HST Rate
Ontario	13% (5% GST + 8% Provincial) is the total tax rate that applies to goods in many provinces.
New Brunswick is a province in Canada that is subject to the federal goods and services tax.	15% (5% GST + 10% Provincial)
Nova Scotia	15% (5% GST + 10% Provincial)
Prince Edward Island	15% (5% GST + 10% Provincial)
Newfoundland and Labrador	15% (5% GST + 10% Provincial)

So, if you buy that same $500 chair in Calgary, Alberta, you pay $25 in tax. If you buy it in Toronto, Ontario, you pay $65 in tax.

Provincial Sales Tax (PST): The Separate Provincial Tax

And then there’s the third group. These provinces have their own sales tax, called the Provincial Sales Tax (PST), but they’ve decided to impose the HST to simplify the taxation of supplies of goods. not to harmonize it with the GST. This means businesses in these provinces are in the toughest spot: they have to act as a tax collector for two different governments under two different sets of rules.

They must register for, collect, and remit the 5% federal GST to the Canada Revenue Agency, as mandated by the Department of Finance. And they must also register for, collect, and remit their PST to their own provincial ministry of finance. The rules for what’s taxable can even be different, and certain essentials such as groceries may be exempt. Some things might be subject to GST but not PST, or vice versa. It’s a significant administrative burden.

The provinces with a separate PST system are:

• British Columbia: 7% PST
• Saskatchewan: 6% PST
• Manitoba: 7% Retail Sales Tax (RST)
• Quebec: 9.975% Quebec Sales Tax (QST). The QST is unique because it’s designed to work almost exactly like the GST, but it’s still administered separately by Revenu Québec.

In these provinces, your receipt for that $500 chair would show two lines of tax: one for GST ($25) and another for PST/RST/QST.

A Guide for Businesses: Mastering Input Tax Credits (ITCs)

Alright, let’s come back to the most important concept for any business: Input Tax Credits, or ITCs. If you run a business and you are a GST/HST registrant, this is the mechanism that allows you to get your money back. It is the heart of the “value-added” system and failing to understand it is like throwing money away.

What Are Input Tax Credits?

An Input Tax Credit is a credit you can claim to recover the GST/HST that you paid on purchases used in your business. paid or owe on purchases and expenses related to your “commercial activities.” The whole point is to make sure that the tax flows through the business and is ultimately paid only by the final consumer. Your business is just a temporary stop for the tax money.

Let’s go back to our chair maker. They paid $7.50 in GST to the lumber mill. They collected $15.00 in GST from the retail store. The ITC is that $7.50 credit. It means they only have to send $7.50 to the government, not the full $15.00 they collected. They were made whole for the tax they paid on their “inputs” (the lumber).

This applies to almost everything you buy for your business. The GST on your office rent, your phone bill, your new computer, the gas for your delivery van, the fee you paid your lawyer—all of it is potentially claimable as an ITC.

How to Claim Your ITCs: A Step-by-Step Overview

The process isn’t automatic; you have to do the work. But it’s a routine that quickly becomes second nature for any business owner.

1. Track Everything: The first step is meticulous record-keeping. You need to keep all your receipts and invoices for your business purchases. The law requires that these invoices show the seller’s GST/HST number and the amount of tax paid. Without that documentation, the CRA can deny your claim in an audit.
2. Calculate Your Totals: At the end of your “reporting period” (which could be a month, a quarter, or a year, depending on your sales volume), you do some simple math.
   • Line 105 on the GST Return: You add up all the GST/HST you pay on supplies of goods and services to determine your total tax liability. collected (or were supposed to collect) from your customers on your sales.
   • Line 108 on the GST Return: You add up all the GST/HST you paid on your business purchases and expenses. This is your total ITCs.
3. Find the Net Amount: You subtract your total ITCs (Line 108) from the total GST/HST you collected (Line 105).
4. Remit or Refund:
   • If the result is positive, that’s your “net tax.” You owe that amount to the government, and you must remit it to the CRA by the due date.
   • If the result is negative (meaning you paid more in GST/HST than you collected), you are entitled to a refund for that amount, which the CRA will pay to you. This is common for businesses that export goods (sales are often “zero-rated,” so they collect no GST, but still pay GST on their inputs) or for businesses in a startup phase making large capital purchases.

This whole calculation is done on a form called the GST/HST Return, which you file with the CRA.

Common Business Expenses Eligible for ITCs

So what kind of things can you claim ITCs on? The list is long, but it all comes down to one question: “Was this expense incurred for the purpose of my commercial activities?” If the answer is yes, you can likely claim the ITC.

Here’s a quick list of some of the most common examples:

• Operating Expenses: Rent for your office or store, utilities (hydro, heat, internet), telephone bills.
• Cost of Goods Sold: The raw materials and inventory you buy to make your products or to resell.
• Capital Property: Things like computers, machinery, vehicles, and furniture that you buy for the business can be imported into Canada. There are some special rules here, but generally, the GST/HST is recoverable.
• Travel and Meals: The GST/HST on travel expenses like flights, hotels, and meals when you’re traveling for business (note: there are often limits, like only being able to claim 50% of the ITC on meals and entertainment).
• Professional Fees: Fees paid to your accountant, lawyer, or consultant.
• Marketing and Advertising: Understanding how the GST and HST apply to your supplies of goods and services is crucial for compliance. The costs of running ads, printing flyers, or maintaining your website.
• Office Supplies: Everything from paper and pens to software subscriptions.

Getting a handle on ITCs is non-negotiable for running a financially healthy business in Canada. It directly impacts your cash flow and your bottom line, especially when remitting taxes for every province.

What’s Taxable and What’s Not? Understanding Supplies

The government doesn’t apply GST/HST to absolutely everything. Certain goods and services are treated differently for policy reasons—often to ensure that essential items remain more affordable and accessible. The government divides all goods and services—which it calls “supplies”—into three categories.

Taxable Supplies: The Default Category

This is the default, the catch-all category. If a good or service isn’t specifically identified in the law as being “exempt” or “zero-rated,” then it’s taxable. This includes the vast majority of things you buy every day: cars, clothes, electronics, restaurant meals, legal services, haircuts, home repairs, and so on. If you are a GST/HST registrant, you must charge the applicable GST/HST rate on these supplies.

GST-Exempt Supplies

Exempt supplies are things that the government has decided should not be subject to the GST/HST system at all. Consumers do not pay any tax on these items.

But there’s a huge catch for businesses that provide them. If you only sell exempt supplies, you cannot register for GST/HST, and you cannot claim any Input Tax Credits on the expenses you incur to provide them. The GST/HST you pay on your rent, equipment, and supplies just becomes a cost of doing business for you, which you have to absorb into your pricing.

Why does this matter? Imagine a doctor’s office. Medical services are largely exempt. The office still has to pay GST/HST on its rent, medical equipment, and office supplies. Because its own services are exempt, it cannot claim any of that tax back through ITCs.

Here are the most common examples of exempt supplies:

• Medical and Dental Services: Most services provided by doctors, dentists, optometrists, and other healthcare practitioners.
• Used Residential Housing: The sale of a house that is not new.
• Long-Term Residential Rent: Renting an apartment or house for a month or more.
• Financial Services: Bank fees, loan interest, insurance premiums.
• Educational Services: Most tuition for courses leading to a diploma or degree.
• Childcare Services: Services for children under 14 may be exempt from the federal goods and services tax.

Zero-Rated Supplies

This third category is special, and it’s the one that causes the most confusion. Zero-rated supplies are technically taxable, but they are taxed at a rate of 0%.

For the consumer, the result is the same as an exempt supply: you don’t pay any GST/HST. The price on the shelf is the price you pay, inclusive of the applicable federal goods and services tax.

But for the business, there is a world of difference. Because zero-rated supplies are still part of the “taxable” system, businesses that sell them can still claim full Input Tax Credits for the GST/HST they pay on their expenses. This is a huge benefit when remitting taxes for every province. It keeps the tax from becoming embedded in the cost of these essential goods.

The classic examples of zero-rated supplies are:

• Basic Groceries: This includes things like milk, bread, eggs, meat, fish, fruits, and vegetables. It does not include snack foods, candy, soft drinks, or restaurant meals. The rules can be weirdly specific—a single donut is taxable, but a pack of six is zero-rated.
• Prescription Drugs: e.g., essential medications that may apply for tax exemptions. Any drug that requires a prescription to be sold.
• Certain Medical Devices: This includes things like artificial teeth, hearing aids, and wheelchairs.
• Exports: related information can be found on canada.ca. Goods and services that are sold to customers outside of Canada are generally zero-rated. This is a key principle of a value-added tax system: the tax should only apply to domestic consumption. This policy helps Canadian exporters remain competitive on the global market.

So, a grocery store collects 0% tax on a carton of milk, but it can still claim ITCs on the GST it paid for its refrigerators, cash registers, and rent. This allows them to keep the price of that milk as low as possible.

GST/HST for Consumers: The GST Credit and What You Pay

As a consumer, you don’t need to worry about remittances or ITCs. Your role in the system is much simpler: you are the one who ultimately pays the tax. But the government recognized that a flat consumption tax can hit people with lower incomes harder, since they spend a larger proportion of their income on necessities. To counteract this, they created a program to help out.

How GST/HST Impacts Your Daily Purchases

Your main interaction with the GST/HST is on the receipts you get every day. It’s the tax added on at the cash register or included in the price tag. As we’ve covered, the amount you pay depends entirely on where you are.

• In Calgary (Alberta): related information about taxes can be found on canada.ca. You buy a $100 taxable item. You pay $105 ($100 + 5% GST).
• In Toronto (Ontario): You buy that same $100 item. You pay $113 ($100 + 13% HST).
• In Vancouver (British Columbia): You buy that same $100 item. You pay $112 ($100 + 5% GST + 7% PST).

This is why comparing prices across provinces can sometimes be tricky if you don’t account for the different tax rates.

The GST/HST Credit: A Rebate for Low and Modest Incomes

To help offset the cost of the tax for those who can least afford it, the federal government introduced the GST/HST Credit.

This is a tax-free quarterly payment sent to individuals and families with low to modest incomes. The amount you get depends on your family situation (if you’re single, married, have children) and your adjusted family net income. The lower your income, the higher your credit. Once your income passes a certain threshold, the credit is phased out completely.

The best part about the credit is that you don’t even have to apply for it. When you file your annual income tax and benefit return, the Canada Revenue Agency automatically determines if you’re eligible and will start sending you the payments if you are. It’s a key social policy tool built into the consumption tax system to ensure fairness.

The Canada-USA Difference: Why There’s No “GST” in the United States

If you’re familiar with the American system, you might be wondering how all this compares to their “sales tax.” The names sound similar, but the systems are fundamentally different, and it’s a perfect example of the different approaches the two countries take to taxation.

Understanding the U.S. Sales Tax System

First and foremost, the United States does not have a national, federal consumption tax like the GST. There is no American equivalent of the CRA collecting a 5% tax from coast to coast, similar to how it’s assessed in Canada.

Instead, the U.S. has a patchwork system of sales taxes that are levied at the state and local (city or county) level. This leads to a huge amount of variation.

• 45 states and the District of Columbia have a statewide sales tax.
• Five states have no statewide sales tax at all: Alaska, Delaware, Montana, New Hampshire, and Oregon.
• Many states allow local municipalities to add their own sales tax on top of the state tax, so the rate can change from one city to the next.

This means the total sales tax you might pay in the U.S. can range from 0% in Portland, Oregon, to over 9% in parts of Chicago, Illinois.

Key Differences: Value-Added vs. Retail Level Taxation

The biggest conceptual difference, though, is how the tax is collected.

As we’ve seen, Canada’s GST/HST is a multi-stage, value-added tax. It’s collected and remitted at every step of the production and distribution chain, with the ITC mechanism ensuring that businesses are refunded for the tax they pay on their inputs. The system is complex behind the scenes but results in a transparent and consistent tax on the final consumer.

The U.S. Sales Tax, on the other hand, is a single-stage, retail-level tax. It is only charged once, at the very end of the line when a product is sold by a retailer to its final consumer. Businesses in the U.S. can buy their inventory and supplies “for resale” without paying sales tax by providing a resale certificate to their supplier. The whole tax burden is collected in that one final transaction.

This might seem simpler, but it can also be less transparent. The Canadian GST model is widely considered by economists to be more efficient because it avoids the problem of “tax cascading”—where a tax gets hidden in the price of business inputs, driving up costs in a way that’s invisible to the final consumer.

Frequently Asked Questions (FAQ) about GST/HST

What is the current GST rate in Canada? The federal GST rate is 5%. This is the baseline tax. In many provinces, a provincial sales tax is added, either separately (PST) or blended together (HST), resulting in a higher total tax rate.

Is GST the same as HST? No, but they are directly related. The HST (Harmonized Sales Tax) is the combination of the 5% federal GST and a provincial sales tax component into a single, blended tax. It is used in Ontario and the Atlantic provinces.

What basic groceries are exempt from GST? Technically, they are “zero-rated,” not exempt, which means they are taxed at 0%. This category includes most basic food staples like milk, bread, eggs, meat, fish, fruits, and vegetables. It does not include items considered snacks, prepared meals, or luxuries, like chips, candy, soft drinks, or alcohol.

Do I have to register for GST as a small business? You are required to register for GST/HST if your worldwide revenues from taxable supplies exceed $30,000 in a 12-month period, as mandated by the government of Canada. If you are under this “small supplier” threshold, registration is optional.

How often do I need to file a GST/HST return? The filing frequency depends on your annual revenue. Small businesses often file annually. As your revenue grows, the CRA will require you to file quarterly or even monthly to ensure more regular remittance of the tax collected.

Can I claim ITCs on a vehicle I use for business? Yes, if you are a GST/HST registrant and use the vehicle in your commercial activities, you can claim ITCs on the purchase price or lease payments. There are, however, specific rules depending on the percentage of business vs. personal use, and there may be limits on the capital cost of passenger vehicles on which you can claim the credits.