As a business owner, it is important to have proper knowledge of the tax obligations that affect you. In light of that, we have put together everything you need to know about harmonized sales tax (HST).
What is Harmonized Sales Tax?
The Harmonized Sales tax which is widely known as the HST is a consumer tax that is a result of combining the Canadian Provincial Sales Tax (PST) and the Goods and Services Tax (GST). This combination came about as the federal government of Canada was geared on pilling pressure on the provinces to let go of their independent provincial sales tax system and embrace a blended tax that would ensure that Canadian businesses are more competitive.
The HST is charged on consumers at the point of sale. The business collects this tax by charging it on the goods and services then, in turn, remits the total amount to the government at the end of the trading or financial year.
Registration and collection of the HST
The responsibility to collect and remit harmonized sales tax lies solely on the business owner. The business needs to register for HST via the Canadian Revenue Agency (CRA) as long as that business has total revenue of 30K per annum. Businesses with revenue of less than 30k per year are not obligated to register for the HST but they may still do so voluntarily.
Once you start collecting HST it will be mandatory to let your customers know. You must provide the breakdown of your fees and HST amount to let the customers know that they are being charged and how much they are being charged. The reason for doing this is that some of your customers are HST registrants and they may need to claim input tax credits.
How to remit the HST to the government
Once you registered for HST, CRA will allocate you a reporting period. You should send your HST within the reporting period and ensure that you file returns for every specific returning period.
You will find that your assigned reporting period is based on the assessment of the annual revenue you generate from your annual sales of goods and services that are taxable. You may find that the allocated reporting period is not in tandem with your businesses’ accounting periods. If this is the case, you may want to change your reporting period. You can do this by notifying the CRA. It is important to note that this may mean that you are remitting and filing your HST much more frequently than expected.
Which businesses are exempt from HST?
Many retail products are subject to the HST. There are however some that are tax exempt or zero-rated. Zero-rated goods and services have a 0% HST rate. Such products include fishery goods, prescription drugs, basic groceries and agricultural goods. Services that are tax exempt include dental services, child care services, health and medical care services.
Consumers buying gods from outside Canada are exempt from paying HST as long as the products are for use outside Canada.
Non-residents in Canada are however obligated to pay HST though some may be eligible for HST rebates.
Out of province sales
There is usually a great challenge posed to businesses by the differing tax regimes. Canadian businesses are required to charge PST/GST or HST according to the provincial rates where the product is going.
When supplying taxable goods or services to a province or territory that participates in the tax arrangement then you will require to pay HST while supplying to non-participating regions will only require you to pay GST. This is courtesy of the Place of Supply Rule.
Compliance with the tax regulation is advantageous to your business not to mention the peace of mind that comes with it. In order to get it right, you may need to stay up to date with the CRA so that you can be aware and take advantage of any emerging changes.