Introduction to Harmonized Sales Tax (HST)
Canada’s Harmonized Sales Tax (HST) is a consumption tax paid by local consumers and businesses. As the name implies, it combines the nation’s federal goods and services tax (GST) and various provincial sales taxes into one. Five Canadian provinces utilize the HST, while other areas in Canada use a similar GST.
Implemented in 1997, the HST aims to simplify administrative costs for businesses, leading to lower prices for consumers. The Canada Revenue Agency (CRA) collects the HST and distributes the revenue to the participating provinces.
Key Takeaways
- The HST combines federal and provincial taxes on goods and services in five Canadian provinces.
- The HST rate is 15% in all participating provinces except Ontario, where it is 13%.
- Streamlining the recording and collection of federal and provincial sales taxes into a single, uniform levy was the idea behind the HST.
- Foreign purchasers of Canadian goods are exempt from HST if the goods or services are used outside Canada.
- While some critics argue it shifts the tax burden to consumers, proponents argue it ultimately lowers costs for consumers.
Who Pays the HST in Canada?
The HST is collected at the point of sale (POS). Vendors add the HST rate to the cost of goods and services, collect the tax, and remit it to the CRA. The CRA then distributes the provincial portion of the HST to the respective province’s government.
Before the introduction of the HST in 1997, Canada had a dual system: a federal GST and provincial sales tax (PST). This led to significant variations in sales tax rates across the country.
The adoption of the HST aimed to simplify sales-tax-related bookkeeping, reducing costs for businesses and customers. However, not all provinces opted for the HST, maintaining their separate systems instead. This results in tax disparities for businesses operating across provincial lines.
Canadian Provinces and the HST
The HST is used in five of Canada’s 13 provinces:
- Newfoundland and Labrador (since 1997)
- New Brunswick (since 1997)
- Nova Scotia (since 1997)
- Ontario (since 2010)
- Prince Edward Island (since 2012)
Other provinces like British Columbia, Saskatchewan, Québec, and Manitoba continue using a provincial system alongside the GST. Alberta, Northwest Territories, Nunavut, and Yukon only apply the federal GST without an additional provincial sales tax.
Registering and Collecting the HST
Canadian business owners in HST-participating provinces must collect and remit the HST. Businesses earning more than $30,000 annually must register for an HST account with the CRA. Small suppliers earning below this threshold may choose to register voluntarily, allowing them to claim input tax credits.
Each province has harmonized its PST with the GST for the HST program. Rates can vary, but most provinces enforce a 15% rate.
Exempted Goods and Services
Not all goods and services are subject to the HST; some are exempt or zero-rated, carrying an HST rate of 0%. These items include basic groceries, books, and various agricultural and fishery goods. Foreign buyers of Canadian products do not pay HST if the items are used outside Canada.
Impact of the HST on Taxpayers
The HST’s impact on consumers and businesses remains debated. Critics argue that it shifts the tax burden from businesses to consumers. Conversely, proponents claim it lowers the cost of doing business, thereby reducing prices for consumer goods and services.
Frequently Asked Questions
How does Canada’s Harmonized Sales Tax (HST) work?
The HST is collected at the point of sale. Vendors add the HST rate to the cost of goods and services and remit it to the CRA. The CRA then distributes the provincial portion of the HST to the respective provincial government.
What is the purpose of the HST?
The goal of the HST is to streamline recording and collection of federal and provincial sales taxes into a consistent tax system across Canada.
Does the United States have an HST?
No, the U.S. does not have a federal sales or value-added tax. State-level sales taxes exist, but revenue is not distributed nationally.
Conclusion
The Harmonized Sales Tax (HST) combines federal and provincial taxes on goods and services in five Canadian provinces, maintaining a 15% rate, except in Ontario (13%). Introduced in 1997, it aimed to simplify tax recording and collection. While critics argue it shifts tax burdens to consumers, proponents believe it lowers overall costs. Understanding the HST is crucial for both consumers and businesses in Canada.
Related Terms: Consumption Tax, Goods and Services Tax (GST), Point of Sale (POS), Revenue.
References
- Government of Canada. “Transition to the Harmonized Sales Tax in Ontario and British Columbia and Winding Down of Provincial Sales Tax in Ontario and British Columbia”.
- Government of Canada. “Doing Business in Canada – GST/HST Information for Non-Residents”.
- Government of Canada, Revenue Agency. “Charge and Collect the Tax—Which Rate to Charge”.
- Retail Council of Canada. “Sales Tax Rates by Province”.
- Government of Canada. “Harmonized Sales Tax: Technical Paper”, Page 7.
- Government of Ontario, The Ministry of Finance. “Harmonized Sales Tax”.
- Government of Prince Edward Island. “Harmonized Sales Tax (HST)”.
- PwC Worldwide Tax. “Canada: Corporate - Other Taxes”.
- CBC News. “B.C. Votes 55% to Scrap HST”.
- The Tax Foundation. “The Three Basic Tax Types”.
