Canada's Multi-Layer Sales Tax System
Canada operates a layered sales tax system that combines federal and provincial components. The federal Goods and Services Tax (GST) is 5%. Some provinces have harmonised their provincial sales tax with the GST into a single Harmonised Sales Tax (HST), while others maintain separate Provincial Sales Tax (PST) alongside the GST.
The combined rates businesses must collect depend on the province of supply:
- Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, PEI: 15% HST (federal + provincial combined)
- British Columbia, Saskatchewan, Manitoba: 5% GST + separate PST (rates vary)
- Quebec: 5% GST + 9.975% QST (Quebec Sales Tax) = effectively 14.975%
- Alberta, Northwest Territories, Nunavut, Yukon: 5% GST only (no provincial sales tax)
The $30,000 Registration Threshold
GST/HST registration is mandatory when your total taxable revenues exceed $30,000 CAD in any single calendar quarter or over four consecutive calendar quarters. This threshold applies to most small suppliers. Below this threshold, registration is voluntary.
Unlike UK VAT or Australian GST thresholds, Canada's $30,000 threshold is quite low — many part-time businesses and growing sole traders will cross it within their first year of operation. Failing to register once the threshold is crossed carries penalties and liability for uncollected GST/HST going back to the date the threshold was exceeded.
Zero-Rated and Exempt Supplies
Not all supplies are taxable. Key distinctions for retail:
- Zero-rated (0% GST/HST): Basic groceries (most unprocessed food), prescription drugs, agricultural products, exports — supplier does not collect tax but can claim input tax credits
- Exempt: Residential rent, most health care, educational services, financial services — supplier does not collect tax and cannot claim input tax credits
- Taxable: Restaurant meals, prepared food, most retail goods, services
A grocery store selling both basic groceries (zero-rated) and prepared hot food (taxable) must configure its POS to apply the correct rate to each item category.
Input Tax Credits (ITCs)
Registered businesses can reclaim the GST/HST they paid on business purchases as Input Tax Credits. When you buy stock from a registered supplier, the 5% or 13% or 15% GST/HST on that purchase is recoverable against your net remittance. This is the fundamental mechanism that prevents GST/HST from being a cost burden to businesses — only the final consumer bears the economic cost.
Filing and Remittance Frequency
The CRA assigns a filing frequency based on your annual taxable sales:
- Annual (under $1.5 million): one return per year, due 3 months after fiscal year-end
- Quarterly ($1.5 million–$6 million): four returns per year, due 1 month after each quarter
- Monthly (over $6 million): monthly returns, due 1 month after each reporting period
Quebec's QST: A Separate Registration
Quebec's QST is administered separately by Revenu Québec, not the CRA. If you supply goods or services in Quebec, you need both a GST/HST registration number from the CRA and a QST registration number from Revenu Québec. These are filed and remitted separately, on different forms, to different government bodies.
Conclusion
Canada's sales tax system is more complex than most countries because of its provincial variation. A POS configured with the correct rate for your province(s) of operation, separating zero-rated from taxable supplies, and generating a quarterly ITC and net tax summary is the practical foundation for painless CRA compliance.
