HST: A Quick Guide for Small Business Owners

The federal government applies GST nationwide, while specific provinces apply HST, which is a combined federal and provincial tax. The federal GST has a fixed rate of 5%. The Harmonized Sales Tax rate varies depending on the province.

HST (Harmonized Sales Tax)

HST is applicable in certain provinces, including Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. Harmonized Sales Tax is administered jointly by the federal government and the respective provincial governments in HST provinces. The HST rate varies by province, as it combines the federal GST rate with the applicable provincial rate. For example, in Ontario, the Harmonized Sales Tax rate is 13% (5% GST + 8% PST – provincial component). Provincial sales taxes (PST) are levied by the provinces, so in provinces without HST, there may be a separate provincial sales tax (PST) in addition to the federal GST. As we see, Harmonized Sales Tax replaces both the federal GST and the PST in these provinces.
For Canadian small business owners, understanding the Harmonized Sales Tax is key to financial planning. Let’s break down the HST journey and its implications for businesses.

Evolution of HST Rates

The introduction of the Harmonized Sales Tax in three Atlantic provinces in 1997 combined the federal GST and provincial sales taxes. The rates shifted over the years, aligning with nationwide adjustments. Today, the Harmonized Sales Tax in Nova Scotia, New Brunswick, and Newfoundland and Labrador stands at 13%.
The Canadian government, in its 2008 federal budget, hailed sales tax harmonization as a significant step for improving the competitiveness of businesses. This move aimed to encourage provinces to abandon their Provincial Sales Tax (PST) systems.

Public Opinion vs. Implementation

Despite public resistance, British Columbia and Ontario implemented the Harmonized Sales Tax in 2010. This replaced the previous separate GST and PST, streamlining the tax structure.

Studies showed that tax harmonization fosters business investment and accelerates economic growth. British Columbia, for instance, introduced the HST at 12%, later committing to reducing it to 10% by 2014. However, in 2011, a referendum in British Columbia resulted in the repeal of the HST, reverting to the PST/GST model in 2013. The move was fueled by public sentiment and economic considerations.

Provincial Exemptions

Provinces under the HST often exempt certain items. For example, books are commonly exempted in most provinces. Nova Scotia exempts residential heating sources, Ontario excludes items like children’s clothing, and British Columbia waived Harmonized Sales Tax on public transit fares.

Registration and Payment HST for business owners

Certain conditions require Canadian entrepreneurs to register and pay the Harmonized Sales Tax. Once you register for Harmonized Sales Tax, you must collect the tax on your taxable supplies and remit it to the Canada Revenue Agency (CRA). Also, you can claim ITCs for the HST paid on your business expenses.

Here are the key cases in which you should register and pay Harmonized Sales Tax:

Threshold Exceedance. If your total worldwide revenues from taxable supplies exceed $30,000 in the last four consecutive calendar quarters or any single calendar quarter, you must register for HST.
Voluntary Registration. Even if your revenues do not meet the threshold, you can voluntarily register for HST. This can be beneficial if you want to claim input tax credits (ITCs) for the HST paid on business expenses.
Carrying on a Commercial Activity. If you are carrying on a commercial activity in Canada, which includes selling goods or services, leasing property, or providing taxable services, you are generally have to register for and collect HST.
Providing Taxi or Limousine Services. If you operate a taxi or limousine service, you must register for and collect HST on your services, regardless of your revenue.
Certain Supplies of Real Property. If you sell or lease specific types of real property, such as commercial real estate or residential rental property, you may be required to register for HST.
Importing Taxable Goods. If you import taxable goods into Canada for your commercial activities, you are generally have to pay the HST on the imported goods.
Providing Short-Term Accommodation. If you provide short-term accommodation (e.g., renting out rooms, cottages, or vacation properties), you may be required to register for HST.

Understanding Harmonized Sales Tax nuances is crucial for small business owners. Stay informed about exemptions, rate changes, and economic considerations to make informed financial decisions.

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