- Glossary
- Harmonized Sales Tax (HST)
Harmonized Sales Tax (HST)
The Harmonized Sales Tax (HST) in Canada is a consumption tax paid by local residents and companies. It "harmonizes" (combines) the federal goods and services tax and numerous provincial sales taxes, as the name implies. The HST is used in five Canadian provinces; other areas of Canada utilize a comparable Goods and Services Tax (GST).
The HST went into effect in 1997. Proponents of the tax say that it boosts Canadian businesses' competitiveness by reducing administrative costs, resulting in cheaper pricing for consumers. The Canada Revenue Agency (CRA) collects the HST and remits the necessary amounts to the participating provinces.
Understanding Harmonized Sales Tax
The HST is paid by customers at the point of sale (POS). The tax is collected by the seller by adding the HST rate to the price of goods and services and remitting the collected tax to the Canada Revenue Agency (CRA), the federal government's tax division.The CRA then distributes the provincial part of the HST to the governments of the different provinces.
Prior to the implementation of the HST in 1997, Canadian sales taxes were divided into two categories: federal sales tax (GST) and provincial sales tax (PST). Each province set its own rates, resulting in substantial variations in sales taxes across Canada.
The HST was designed to simplify the recording and collection of federal and provincial sales taxes across the country by consolidating them into a single, consistent charge. Advocates claim that because it streamlines sales tax related bookkeeping, it should lower expenses for businesses (and, ultimately, customers).
Advantages of Harmonized Sales Tax
Even if your small business is not compelled to register for HST, there are several benefits to doing so. These benefits should be taken into account.
- Registering for HST voluntarily allows your company to obtain input tax credits. An input tax credit can help you save money on taxes at the end of the year.
- Being in a HST-collecting province streamlines your accounting costs. In some provinces, both the GST and the PST must be taxed. This increases the labor and time requirements.
- Consumer costs can be reduced because only one single tax is collected rather than two.
How Harmonized Sales Tax works
If your company sells taxable goods and services anywhere in Canada and does not qualify as a small supplier, you must open a GST/HST account. This is true regardless of whether your jurisdiction collects the HST or a mix of the GST and the PST. You must start collecting and reporting sales tax on your effective date, which varies based on when you are no longer classified as a small supplier. You must register to collect PST in your province and any other provinces where you sell taxable goods and services if your province replaces the HST with a GST and PST combination.
Once your company has registered for a GST/HST account, you must start collecting the tax and reporting and remitting it in accordance with your designated reporting period, which can be monthly, quarterly, or annually.Your rate will vary depending on where your firm is based and where it taxable supplies goods and services.The federal and provincial governments will each get a portion of the taxes collected by the Canada Revenue Agency.
Key Takeaways
The harmonized sales tax (HST) is a combination of federal and provincial taxes on goods and services in five Canadian provinces. Except for Ontario, where it is 13%, all participating provinces have a HST rate of 15%. The HST was created to streamline the recording and collection of provincial and federal sales taxes by using a single, uniform levy across Canada.
If the goods or services are only intended to be used outside of Canada, HST is not applied to foreign buyers of Canadian goods. While supporters of the tax claim that it ultimately benefits consumers by cutting costs, detractors claim that the HST shifts the tax burden to consumers.
