In this article, we will provide sales tax clarifications. As a small business owner, it is important to know when you should start charging any tax, and whether you are charging GST or PST.
Especially as a business owner in Canada and British Columbia, it’s important to know what tax sales taxes apply to your business, and when to charge each.
GST is the “goods and services tax”, that is the federal tax which is currently at 5% and charged throughout all of the provinces and territories in Canada. This is the tax that most business owners throughout Canada are familiar with.
PST, however, is a “provincial sales tax” that is applied and varies throughout Canada depending on province.
Some provinces have chosen to keep PST separate from GST. The provinces that still have a provincial sales tax are British Columbia, Saskatchewan, Manitoba and Quebec, though only B.C. and Saskatchewan refer to it as PST. This means that B.C. business owners need to take care to consult with their accounting professionals to understand when to charge PST, in addition to GST.
B.C.’s current PST rate is 7%, while Saskatchewan’s is 6%. Manitoba refers to this tax as a retail tax rate (RTS), which is 8% and Quebec refers to it as Quebec Sales Tax (QST) and charges 9.975%.
Currently, Ontario, New Brunswick, Nova Scotia, Prince Edward Island and Newfoundland & Labrador have combined their PST with their GST from the federal government and have created an HST, or “harmonized sales tax”. Ontario’s HST is 13%, while the other provinces have an HST of 15%.
At this time, Alberta, Northwest Territories, Yukon and Nunavut do not have any additional provincial sales tax. These provinces only have GST.
It is important to note that it doesn’t matter if you are taking part in online sales or in-person sales when discussing taxes. The GST will be applicable where required by the product or service.
When it comes to PST or HST, it can become more complicated, as you will be required to collect tax at their provincial rate. It is important to speak with your accounting professional before looking at online sales.
A Closer look at GST
To begin with, it is important to know if GST is applicable to your business.
You may be exempt from paying GST if you are classified as a small supplier. A small supplier refers to a company or individual that has a revenue of less than $30,000 over the last 4 consecutive calendar quarters.
The government of Canada states that if you exceed the $30,000 threshold over the previous 4 (or fewer) consecutive calendar quarters, you must register for the GST and start charging GST on your effective registration date. The effective registration date is no later than the beginning of the month after you are no longer termed a ‘small supplier’.
When you register for a GST account, this will become part of your business number (BN). If you do not already have a (BN), you will receive one when you register for your GST account. This number is what will identify your company with the government of Canada. The easiest method it to access them through the Business Registration online service.
The Canadian government has an extensive guide as to what GST is applied to and what is exempt.
Some of the more common taxable sales include:
- most retail goods
- professional services, including accounting, legal, software development, advertising, etc.
- meals and drinks provided in restaurants
- sales and rental of commercial real property
- sales of new housing
- clothing and footwear
There is also an extensive list of products and services that are referred to as zero-rated supplies. Not to be confused with exempt services, they are applied a rate of tax at 0%. To simplify and explain this, it means that you would not charge GST on the following items, but you may be eligible to claim these input tax credits for the GST paid when filing, which include:
- basic groceries such as bread, milk and vegetables
- prescription drugs, some medical devices and feminine hygiene products
- most farm livestock, agricultural products, and most fishery products
As a business, you will not have to charge GST if you are selling goods or services that are GST exempt. In most cases, you also would not be able to receive any tax credits. These include:
- most health, medical and dental services
- many educational services, including courses supplied by vocational schools or tutors
- services such as child-care and music lessons
As well, there are other groups that you do not need to charge GST to. These include:
- indigenous peoples
- provincial and territory governments
As these are only examples of products and services that GST may or may not be applied to, and it is best to consult either your accounting professional or one of the links above for a more extensive list.
We recommend again that you consult your accounting professional in order to have them explain exactly how to fill out a GST return and how often this needs to be done. They can also explain how to remit (pay) any tax that you have collected as well as how to claim input tax credits (GST you have paid that may be recoverable).
A Closer look at PST
Whether or not you are a ‘small supplier’ varies from province to province. More specifically, B.C. has a small seller exemption if your gross annual sales are less than $10,000 per year.
This means that you do not have to charge PST if you earn less than this.
Any business that is not located in B.C., including online sales will have to pay PST if they target or solicit customers in B.C., deliver taxable goods to B.C., sell taxable goods or software, or accept purchase orders from anywhere in B.C.
As this can get quite complicated depending on which province you are from, or whether or not you are within Canada, we recommend you speak with your accounting professional.
In B.C., you must register to collect PST if you are located in B.C. and you sell or lease taxable goods, or if you provide software or taxable services in the ordinary course of your business in B.C.
There are some PST exemptions in B.C. that are applicable to everyone. These include:
- food for human consumption (including basic groceries and restaurant meals)
- children-sized clothing
- bicycles (without motors)
- prescription medications and some general household medications
- books newspapers and magazines
Some sales and services that are not taxed with PST in B.C. include:
- professional services (other than legal services)
- sales and rentals of real property (residential or commercial)
- transportation fares (e.g. ferry, airline, bus, train)
- admissions and memberships
- public and private campsites.
There are some additional PST exemptions, that may require documentation.
These situations include:
- verifying a PST number to confirm their business is also registered for PST
- Farmers, contractors and commercial fishers are considered qualified purchasers and have access to exemption certificates.
- wholesalers that do not make any retail sales
When to charge PST
According to the small business guide to PST in British Columbia, PST is the retail sales tax that is payable when a taxable good, software or service is acquired for personal or business use, unless there is an exemption.
Above we covered exemptions on PST in B.C., but there are some services that must charge PST on. These include:
- Selling taxable tangible goods, such as alcohol, cannabis products, motor vehicles, boats, building materials and furniture (both household and office) and general merchandise (appliances, cosmetics, clothing, etc)
- Leasing taxable goods, including tools and equipment, motor vehicles, airplanes and artwork
- Services such as maintaining and repairing automobiles, TVs, watches and knives
- Providing software, legal services or providing telecommunication services
The general PST rate in B.C. is 7%, but there are some items that are subject to different PST rates, which are noted in the table below.
Where these lists may seem lengthy, there are certainly more specific details noted on the government of B.C. website. It is always wise to consult your accounting professional for further clarification.
The quickest way to apply for your PST number in B.C., is through eTaxBC. This process will take approximately 25 minutes to fill out and upload any necessary documents. However, you want to make sure that this is done right – as it can have serious consequences. This is why the best way to apply for a PST number is to consult with your accountant, and figure out the best course of action.
No matter which method you choose to register for your PST number, it is important to remember that this process can take up to 21 days so plan ahead.
When it comes to reporting and paying any PST, there are guidelines set up as to how much PST you collect and the frequency in which you need to report. As this can get complicated especially when keeping GST separate from PST, we recommend your speaking with an accounting professional.
Need help from an expert?
If you need clarification on GST and PST exemptions are requirements as well as filing GST and PST, let one of our experts at Valley Business Centre help. For over 30 years, Valley Business Centre has been providing comprehensive bookkeeping, payroll and tax services to our clients in Whistler, Squamish, the Sea to Sky Corridor and metro Vancouver B.C. areas. Valley Business Centre provides reliable and effective services to all clients.
Disclaimer
This article is written for informational purposes only. It is current at the date of posting and changes to laws and regulation may result in the information becoming outdated. It is not intended to provide legal, tax, or financial advice. It is recommended that readers get advice from a tax professional before making any final decisions.
