An Overview of Taxation in Canada: Sales Taxes - PricewaterhouseCoopers LLP
Sales taxes in Canada are imposed by both the federal and several provincial governments. The federal Goods and Services Tax ("GST") is a form of value-added tax that is applied at each stage of the production and distribution chain. This distinguishes it from the various provincial sales taxes, which are levied only at the final consumer level.
The GST is imposed at the rate of 7% of the sales price of most goods and services supplied in Canada, including goods and services imported into Canada. For imported goods, the GST is based on the duty-paid value (which is the value of the goods for duty plus any customs duty) and is collected on imports at ports of entry. Goods exported from Canada are not subject to the GST and leave the country tax free.
Certain other goods and services, such as basic groceries, health care and financial services, are also not subject to the GST. These exemptions, introduced to address social and economic objectives, add some complexity to the workings of the GST system.
At present, the provinces of New Brunswick, Newfoundland and Nova Scotia have "harmonized" their sales taxes with the GST, resulting in a combined Harmonized Sales Tax ("HST") of 15%. (Quebec charges its sales tax on the GST-included basis with the combined tax known as the QST.)
Each registered business is entitled to claim a credit or refund for any GST/HST paid on the purchase of goods or services used in its taxable commercial activities. This credit (referred to as an input tax credit) is available to each person in the production and distribution chain except the final non-business consumer of the good or service. The total amount of tax collected by a business on taxable sales in a given period (monthly, in most cases) less the input tax credit for that period, must be remitted to the government. If, in any given period, the input tax credit exceeds the tax collected on sales, the business is entitled to a refund equal to the difference. This system of tax collection and related input tax credits necessitates specific documentation requirements.
Foreign businesses that make goods or provide services in Canada are required to register and charge GST/HST under the same rules as a domestic business. Foreign businesses that incur GST/HST on business costs but make no taxable supplies in Canada in some cases may apply to reclaim the GST/HST that a Canadian business could recover.
All provinces, except Alberta, impose some form of provincial retail sales tax (either directly or as part of the HST or QST) on purchases or users of certain goods and services within the province. Vendors of taxable goods and services are required to be registered and to collect and remit the tax. Provincial sales tax rates currently vary from 7% to 10%.
Relief from these taxes is available in certain circumstances. For example, most provinces provide tax exemptions for goods, such as basic groceries, medicines and books. In addition to exemptions for specified goods and services, most provinces also provide exemptions for certain purchases made by identified classes of purchasers, such as production machinery and equipment purchased by manufacturers and certain purchases made by farmers, diplomats and hospitals.
The information provided herein is for general guidance on matters of interest only. The application and impact of laws, regulations and administrative practices can vary widely, based on the specific facts involved. In addition, laws, regulations and administrative practices are continually being revised. Accordingly, this information is not intended to constitute legal, accounting, tax, investment or other professional advice or service.
While every effort has been made to ensure the information provided herein is accurate and timely, no decision should be made or action taken on the basis of this information without first consulting a PricewaterhouseCoopers LLP professional. Should you have any questions concerning the information provided herein or require specific advice, please contact your PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP is a Canadian member firm of PricewaterhouseCoopers International Limited, an English company limited by guarantee.
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Over the past year, we have watched the Canadian dollar drop relative to its U.S. counterpoint impacting Canadian businesses. U.S. goods and services are now more expensive, U.S. sales make a premium and errors when recording foreign exchange transactions can cost you more money.
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