Do you have customers who live outside of your province or outside of Canada? If so, you may be asking yourself if and how to charge GST/HST for these sales. It’s an important question to answer as it will determine your compliance requirements for sales taxes.
In this blog, I will discuss the rules on charging GST/HST for out-of-province sales and foreign clients so you can ensure your business remains compliant with the applicable government authorities.
Do I Need to Charge and Collect Sales Tax for My Business?
Nearly all businesses in Canada are required to charge and collect Goods and Services Tax (i.e. GST) or Harmonized Sales Tax (i.e. HST) on all taxable supplies of goods or services made in Canada. This includes the sale of most goods and services, other tangible properties such as buildings, land, and other real estate items, as well as intangible personal property such as IP rights, admission fees, and digital products.
Harmonized Sales Tax (HST) applies to businesses in provinces where the provincial sales tax are combined with the federal GST. These five provinces are Ontario, Prince Edward Island, Nova Scotia, Newfoundland and Labrador, and New Brunswick.
Goods and Services Tax (GST) applies to the rest of the provinces, along with provincial sales tax (PST) imposed on certain provinces such as British Columbia, Saskatchewan, Manitoba, and Quebec.
Am I Required to Register for GST/HST?
Businesses in Canada are generally required to register and charge GST/HST if their revenue exceeds $30,000 on taxable supplies in a single quarter or over a span of four consecutive quarters. Registration can be completed online or over the phone with Canada Revenue agency.
What are Taxable Supplies?
Taxable supplies mean the sale of goods or services made in the course of conducting business and is subject to GST/HST.
The GST/HST rate on a taxable supply is based on the sales taxes applicable in the province where your business is making the sale. Taxable supplies also include zero-rated supplies.
Zero-rated supplies are the sale of goods and services taxable at the rate of 0%. This means no GST/HST is charged, but the business (or GST/HST registrant) is eligible to claim Input Tax Credits (ITCs) for the GST/HST paid on the business expenses related to the sale of the same goods or services.
Common examples of zero-rated supplies consist of basic groceries (E.g. fresh meat, milk products, fruits), prescribed drugs, certain medical devices, transportation services, and exports where the delivery is outside of Canada.
What Sales Tax Do I Charge and Collect for Out-Of-Province Customers?
When a business sells goods or services to customers in another province, it must charge the customer with the sales tax in their province based on the place of supply rules.
To illustrate, if a business is based in Saskatchewan sells and delivers goods to a customer in Ontario, it must apply the 13% HST to the sales price because the place of supply is in Ontario. In contrast, if the customer from Ontario shops and buys at the store location in Saskatchewan, the business would instead charge 5% GST plus the Saskatchewan provincial sales tax (PST) because the place of supply is in Saskatchewan.
Here are the updated sales tax rates for all Canadian provinces and territories:
|Province/Territory||Type||PST (%)||GST (%)||HST (%)||Total Sales Tax Rate (%)|
|British Columbia||GST + PST||7%||5%||12%|
|Manitoba||GST + PST||7%||5%||12%|
|Saskatchewan||GST + PST||6%||5%||11%|
|Quebec||GST + QST||5%||9.975%||14.975%|
|Newfoundland and Labrador||HST||15%||15%|
|Prince Edward Island||HST||15%||15%|
Do I Need to Charge GST/HST to Foreign Clients?
To determine if GST/HST should be charged and collected from foreign customers, you must consider the place of supply rules. Generally speaking, you are not required to charge GST/HST (or other provincial sales tax) on sales to international customers if the goods or services are purchased while the customer is outside of Canada. In contrast, if a foreign customer makes a purchase while in Canada, you are obligated to charge GST/HST and applicable PST.
Under the GST/HST regulations, goods exported outside of Canada and services rendered to non-residents are considered zero-rated supplies. This means they’re technically taxable, but at a rate of 0%, so you are not required to charge sales tax. The benefit of selling zero-rated supplies is that you can still claim Input Tax Credits (ITCs) for GST/HST paid on business expenses for producing the goods and rendering the services.
Am I Obligated to Collect Provincial Sales Tax (PST)?
All GST/HST accounts must be registered with the federal government through the Canadian Revenue Agency. However, if your business sells to customers in British Columbia, Saskatchewan, Manitoba or Quebec, you may also be required to register with the provincial government and charge PST.
Here are the provincial sales taxes registration requirements for these four provinces:
British Columbia PST registration requirements
British Columbia’s PST rate is 7%. Businesses located in Canada but outside of British Columbia (BC) are required to register and charge BC PST if they meet all of the following conditions:
- Sell goods to customers located in BC
- Solicit orders for sale to purchasers in BC by advertising or other means
- Accept purchase orders for taxable goods from customers located in BC
- Deliver goods to BC, whether physically, electronically, or through a third-party courier.
Small sellers are not required to register and charge BC PST if certain conditions are met. Generally, a small seller is defined as someone located in BC but does not make retail sales in a physical business location and has $10,000 in revenue or less per year.
Saskatchewan PST registration requirements
Saskatchewan’s PST rate is 6%. Businesses located outside of Saskatchewan (SK) need to register and charge SK PST if all of the following conditions are met:
- Goods are acquired for consumption or use in Saskatchewan
- Goods are delivered to Saskatchewan
- The business solicits orders in Saskatchewan through advertising or other means
- The business accepts purchase orders that originate in Saskatchewan
Manitoba PST (or RST) registration requirements
Manitoba’s PST rate is 7%. It is also known as the Retail Sales Tax or RST. Businesses located outside of Manitoba (MB) must register and charge MB PST if they meet all of the following conditions:
- Goods are acquired to be used (and not for resale) in Manitoba
- Goods are delivered to Manitoba
- The business solicits orders for the sale of goods in Manitoba by advertising or other means
- The business accepts purchase orders that originate in Manitoba
Québec QST registration requirements
Quebec Sales Tax (QST) rate is 9.975% and functions similarly to GST/HST. Although the rules are generally harmonized with GST/HST, QST is administered by Revenu Québec and is governed under separate legislation.
Businesses outside Québec are not required to register for QST under the general regime if they are not carrying on a business in Quebec. However, if sales to customers in Québec exceed $30,000, the business must register and collect QST on its sales.
What is an Input Tax Credit for Your Business?
If your business is registered for GST/HST, you can recover the GST/HST paid on business expenses to produce the goods or provide the services by claiming Input Tax Credits (ITCs).
The goods or services you are selling must be a taxable supply, and you must gather the necessary documents from your vendor/supplier (such as an invoice) to substantiate your Input Tax Credit claim.
However, if your business is not a GST/HST registrant with Canada Revenue Agency or you sell goods or services that are considered exempt supplies, you would not be eligible to claim an Input Tax Credit.
Exempt supplies include, but not limited to, services provided by financial institutions insurance policies, housing long-term rental, dental services, and more.
GST/HST can be a complex topic to navigate for a small business owner, especially when it comes to out-of-province sales and foreign clients. Fortunately, there are rules in place that make the process easier for the selling business. By understanding what sales taxes you need to charge your customers based on their location or country of origin, your business will stay compliant while avoiding potential penalties. If you have questions about charging GST/HST and business tax filing, please contact our experienced tax professionals for personalized advice tailored to your business.