International VAT Guides – Canada

GST Framework Canada

Canada has a very complex and intriguing indirect tax system in place. What is very interesting, and in the same way difficult to comprehend, is that there are three different types of sales tax in Canada. Goods and Services Tax (GST) is imposed at the federal level. A Harmonized Sales Tax (HST) results from the combination of Federal GST and provincial sales tax (PST). 

Harmonized sales tax isn’t adopted at the level of all provinces; it is only within the provinces that have signed a uniform agreement. The third “type” of sales tax could be derived from the circumstances in which some provinces haven’t accepted the uniform agreement on HST and are separately charging their local PST. In these provinces, the tax collection and reporting have specific rules compared to provinces that are part of the HST system.

This tax is part of the indirect tax system in provinces that have adopted the Comprehensive Integrated Tax Coordination Agreement (CITCA) with the federal government. Provincial Sales Tax is a type of sales tax collected by the provincial authorities based on the provincial sales tax statute. 

The GST was introduced at the Federal level on January 1, 1991. Following the introduction of the GST, the next important legislative milestone was the amendment to the Excise Tax Act, which introduced the Harmonized Sales Tax (HST). 

GST/HST in Canada

GST rates Canada

The Goods and Services Tax (GST) in Canada applies to most supplies of goods and provision of services that are made or received in Canada. Generally, the Harmonized Sales Tax (HST) adopted by many provinces applies to the same supplies of goods and services as GST. 

Besides the supply of goods or provision of services that have been defined as supplied or received in the country, most of the imports are also under GST/HST Canada. 

Alongside the general GST/HST-rated supplies, there are supplies on which the zero-rated GST applies or are GST-exempt. 

How much is GST/HST in Canada? 

The answer to this question cannot be simple and uniform based on the complexity of the GST Canada system. The GST/HST or PST rate that should be imposed on the specific supply depends on the place of the supply rules. 

Considering the variety of provincial sales taxes, the GST/HST rate that should be imposed can vary significantly. The two most important factors that determine the tax rate that should be levied on specific supplies are the type of supply and the place of supply. 

In Canada, we have three types of provinces concerning the levy of provincial sales taxes. We have provinces that apply PST at zero rate and provinces that use a 6% or 7% rate of PST. Within the second group, we have those provinces that have signed “the simplification” tax rate charging system through the unification of federal GST and provincial sales tax, resulting in HST and provinces with their own sales tax reporting system. (levying their own PST)

At the federal level, Canada imposes GST at 5%. British Colombia, Manitoba, and Saskatchewan continue to levy their own(not harmonized) provincial sales tax rates. This means their PST rate is imposed in addition to the federal GST rate. 

All provinces impose federal GST rates. The provincial sales tax is imposed in addition to the federal GST.

The province of Quebec went even a step further, imposing its own sales tax, known as the Quebec Sales Tax(QST). Quebec Sales Tax is levied separately in addition to the federal GST rate.

Specific groups of supplies are zero-rated under GST/HST. Some supplies are tax-exempted.

GST threshold in Canada 

GST/HST registration threshold for resident businesses: CAD 30,000 within four consecutive calendar quarters.

GST/HST registration threshold for non-resident businesses: Non-resident businesses that carry over a business in Canada usually have the following threshold applied to their supplies – CAD 30,000 within four consecutive calendar. 

GST/HST registration threshold for foreign providers of digital services: Non-resident digital services providers(direct suppliers or digital platforms) should register for GST/HST when the turnover on specified supplies surpasses the threshold of CAD 30,000 in any 12-month.

GST Taxable Activities in Canada

Types of taxable activities that mandate the GST/HST registration:

• Supply of goods and services for consideration;
• Exports;
• Imports of goods and services; 
• Supply of defined digital services. 

Tax Representative in Canada 

Non-resident providers of digital services or products generally don’t need to appoint a local tax representative to fulfill their GST/HST compliance responsibilities.

Tax registration 

Standard Registration 

Economic operators that provide taxable supplies in Canada and surpass the defined threshold for small suppliers should register under the standard GST/HST procedure. Under the new digital economy rules, businesses within the scope of new regulations could be responsible for registration under a simplified, specifically designed framework. 

This economic operator has a simplified reporting scheme alongside the simplified registration scheme. 

Simplified tax registration 

From July 1, 2021, new measures concerning economic operators that are part of the Canadian digital economy landscape became a new referral point for rules for registering and reporting GST/HST in the country. 

These businesses, mainly non-resident providers, should register and report tax under a simplified scheme when specific conditions are met. The company in the digital economy should register under simplified or normal registration. 

The defining parameter for this is the type of activity that the business pursues. Non-resident businesses should register under a simplified system if they provide digital products/services or platform-based short-term accommodation. On the other hand, if it’s part of the supply of qualifying goods, it should be registered under the standard GST/HST system. 

One registration path excludes the other. 

GST/HST on Electronically Supplied Services in Canada 

Digital Services

Foreign providers of digital services(direct or through digital platforms) or platform operators should register for GST/HST under a simplified registration scheme. They are obliged to charge and collect GST/HST for their cross-border supplies under this specifically designed system. 

Defining who is responsible for charging and collecting GST/HST on cross-border supplies of digital services/products made to Canadian residents depends on who the supplier in question is and the supplier registered under a simplified or standard GST/HST regime. 

Non-resident digital services providers (registered under a simplified regime) that make their cross-border supplies available to customers must charge and collect GST/HST on their Canadian supplies. The non-resident supplier that makes its supplies using intermediation services of registered digital platforms isn’t obliged to charge and collect tax on these supplies. 

A foreign provider registered under the standard GST/HST regime is obliged to charge and collect tax regardless of whether he is a direct supplier of cross-border digital services and/or makes its supplies through a digital platform to recipients based in Canada. 

Non-resident suppliers of digital services should charge GST/HST for B2C transactions.

How much is GST/HST in Canada for cross-border digital services?

GST/HST rate Canada: The Canada GST/HST rate for providing digital services/products entirely depends on the place of supply of covered supplies. Practically speaking, the final GST/HST or PST rate will depend on the recipient’s location. 

In most cases, the following GST/HST or PST rates should be levied on the cross-border supplies of digital goods and services: 

• Federal GST at 5% is levied on the level of the country, and in some provinces or territories, only GST is imposed;
• Provincial Sales Tax levied separately and in addition to Federal GST: British Colombia and Manitoba at 7%; Quebec Sales Tax(QST) at 9.975%;
• Harmonized Sales Tax(GST+PST=HST) is levied in the following provinces: New Brunswick at the rate of 15%, Newfoundland and Labrador at the rate of 15%, Nova Scotia at the rate of 15%, Ontario at the rate of 13%, Prince Edward Island at the rate of 15%. 

Taxable Digital Services in Canada

The following types(between others) of digital services/products trigger mandatory simplified GST/HST registration of non-resident providers:

• Software, including applications, programs, and downloadable software E-books or digital publications;
• Video streaming services, video downloads, and digital videos;
• Stock photos, digital artwork;
• Online storage, file hosting, and cloud computing services; 
• SaaS; 
• Intermediation services.

Digital Platform Operators Rules

The registered digital platform operator should charge, collect, and remit GST/HST on the supplies carried on by the foreign non-registered or registered(under simplified regime) providers of cross-border digital services/products to customers in Canada. 

The digital platform operator should charge, collect, and remit GST/HST on all direct supplies made by the platform to the recipient based in Canada. 

The non-resident operator of a digital marketplace or platform(foreign intermediary) that intermediates in the distant supply of goods or taxable digital services is mandated to register for Mexican TAX ID when the place of supply is in Canada. 

Invoicing Rules

Non-resident providers of digital services or platform operators (when the terms are met) who issue an invoice or receipt to the recipient of digital service/product who is based in the country.

Invoice Requirements in Canada 

The pdf invoice should at least contain the following:

General information: 

• Date of invoice issuance; 
• Date and time of supply;
• Unique invoice number from consecutive series.

Seller information:

• Company name;
• Full address (head office);
• Billing address if different from company address;
•  GST/HST number.

Customer information:

• Name; 
• Full address;
• GST/HST number (if applicable).

Fiscal Information:

• Tax amount for each type of goods or services supplied;
• The Tax Rate;
• Type of the transaction by reference to the categories indicated in the GST rules;
• Total tax amount; 
• Invoice Total tax exclusive;
• Rate of any discount;
• Total invoice amount. 

Foreign Currency Invoice in Canada  

In most cases, the invoice should be issued in national currency. When permitted to be issued in foreign currency, the GST/HST, total, and price of goods/services should be indicated in local currency.  

GST/HST Return in Canada 

Standard Return 

Businesses that are registered under the regular GST/HST regime have different reporting requirements in comparison to the businesses that are registered under the simplified regime. The reporting period for the businesses registered under the regular regime is determined by the total revenue made from taxable supplies in Canada in the previous fiscal year or each quarter leading up to it. 

Filling frequency dependable on total turnover can be annual, quarterly, or monthly. 

GST/HST Reporting periods are the periods for which you file your GST/HST returns. In cases where business is also registered for PST in provinces that aren’t part of the HST, different reporting rules could apply. 

The tax payable should be paid within the prescribed period for the return submission.

Simplified Return

Non-resident businesses registered under the simplified registration regime should file and remit tax under simplified reporting rules. The reporting period for the non-resident businesses registered under the simplified procedure is a calendar quarter. 

These economic operators should file and remit tax until the end of the month following the reporting period. 

GST/HST Canada Simplified return

Penalties for late reporting and omitted declarations 

Fines and penalties according to GST/HST Canada:

Failure to file return in mandated form – for non-submitting the return electronically, CAD 100 for the initial return not filed electronically, and  $250 for each following return not filed electronically.

Request for return(by Tax Authority) – if the taxpayer receives a demand to file a return but doesn’t comply with the obligation – CAD 250.

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