What You Need To Know About Charging HST In Ontario

charging hst ontario harmonized sales tax canada gst taxes

What Is The HST Or Harmonized Sales Tax? 

In a simple word, the harmonized sales tax (HST) is a combination of the federal Canadian goods and services tax (GST) and provincial sales taxes (PST). It is used in regions where both the regional PST and the federal goods and services tax GST have been merged into a single value added sales tax. 

Harmonized Sales Tax Explained 

The HST is a consumption tax charged at the point of sale by the customer and enterprises (POS). By applying the HST rate to the cost of goods and services, the seller receives the tax proceeds and then remits the earned tax to the Canada Revenue Agency (CRA), the federal government's tax division. The CRA later transfers to the corresponding provincial government the provincial part of the HST. 

HST advocates claim that it increases the productivity of Canadian companies by decreasing the cost of goods and simplifying the tax-related operating costs of businesses while reducing customer costs. Sales taxes in Canada have historically been split into the federal sales tax (GST) and the provincial sales tax (PST). Each province has its own taxes, resulting in major variations in the country in the sales tax rate. With the launch of the HST in 1997, this started to shift. This system was structured to merge federal and provincial tax rates across the provinces into one uniform rate. 

Canadian Provinces Applying the HST 

5 of Canada's ten provinces use the HST. The HST was adopted in 1997 by New Brunswick, Nova Scotia, and Newfoundland and Labrador. Ontario and British Columbia joined the program in 2010, but British Columbia quit the program 3 years later and restored its provincial sales tax structure after an estimated 55 percent of the citizens of the province voted to cancel the HST. Prince Edward Island replaced the PST with the HST in 2013. 

The tax rate is 15 percent in all participating provinces except Ontario, where it is 13 percent. 

What You Need To Know About Charging HST In Ontario 

Ontario charges a harmonized sales tax (HST) as opposed to using a provincial sales tax and federal goods and services tax (PST/GST). This affects companies that are either based in Ontario or ship goods to the province. The Ontario HST To streamline the sales tax scheme, the harmonized sales tax replaced the PST/GST in Ontario on July 1, 2010. The harmonized sales tax is levied at 13% on most goods and services supplied in Ontario. It consists of a federal tax of 5 percent and a provincial tax of 8 percent, but it is listed as a direct 13 percent on invoices. 

The combining of PST and GST into one tax makes it possible for corporations to recover the entire amount of sales tax. Administrative overhead is often minimized by the Unified Tax System, but it is somewhat offset by numerous deductions and rebates. 

New businesses must register for HST unless they are small suppliers. It is not compulsory to register for or collect Ontario HST for a small business that makes $30,000 or less annually. Small businesses may, however, voluntarily register, allowing them to recover any HST spent on business transactions or expenditures. 

HST Exemptions 

Consumers do not have to pay HST on exempt items including: 

Some certain foods and beverages include basic groceries but remember that alcoholic beverages, soft drinks, candy, snack foods, etc. are not included. 

Health services such as medical and dental, when provided by a licensed practitioner, are also on the HST exemption list and it includes optometrists chiropractor, physiotherapists, chiropodists, audiologists, speech-language pathologists, occupational therapists, psychologists, podiatrists, midwives, etc. as well. 

Other includes child care, tutoring prescription drugs, and most financial services. 

Point-Of-Sale Rebates 

For items formerly exempt from Ontario provincial sales tax but not GST, merchants must provide POS point-of-sale rebates of the 8% provincial part of the HST. These items are as such: 

1. Children's clothing 
2. Children's footwear, up to size 6 
3. Qualifying prepared food and beverages sold for $4 or less 
4. Books, including audiobooks 
5. Newspapers 
6. Child car seats and booster seats 
7. Feminine hygiene products 
8. Baby Diapers 
9. Air travel originating in Ontario and terminating in the U.S. 

Charging HST 

The place of supply decides whether HST on goods or services should be charged or not. To decide if a supply is made within or outside a participating jurisdiction depends upon specific rules. For the most part, the place-of-supply rules are based on the address of the recipient of a service, but there are exceptions. For a detailed list of criteria and examples, the Canada Revenue Agency is a good reference. 

To tell consumers how much tax they are paying, companies must provide invoices, receipts, contracts, or other business records, just like the GST because it will help them have the proper documentation when they will claim input tax credits.

Bootstrap Business Blog Newest Posts From Mike Schiemer, Partners, & Blog Outreach Services