HST and GST: Key Differences, Responsibilities, and Filing Tips
Understand the differences between HST and GST, how they apply to businesses, and key considerations for registration, compliance, and tax credits.
Sales taxes in Canada can be complex, particularly when navigating the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). Businesses must understand these taxes to ensure compliance and avoid costly mistakes. The differences between GST and HST affect pricing, tax collection, and filing obligations.
Federal vs Provincial Responsibilities
Sales tax administration in Canada is split between the federal and provincial governments. The Canada Revenue Agency (CRA) oversees GST and HST in participating provinces. The federal GST rate is 5%, and the CRA manages tax filings, audits, and remittances.
Provinces that have harmonized their sales tax—Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador—use a combined tax structure administered by the CRA. These provinces set HST rates between 13% and 15% and receive a share of the revenue.
Other provinces, including British Columbia, Saskatchewan, and Manitoba, maintain separate provincial sales taxes (PST), which they administer independently. Businesses in these provinces must collect GST federally and remit PST to the provincial tax authority, requiring separate registrations and filings. Quebec operates differently, with Revenu Québec administering both the federal GST and the Quebec Sales Tax (QST), meaning businesses must interact with a separate tax authority.
Determining Which Rate Applies
The applicable sales tax rate depends on the type of supply, the location of the transaction, and any exemptions. Businesses must assess each sale carefully to ensure they charge the correct rate, as errors can lead to penalties and customer disputes.
Place of supply rules determine whether GST or HST applies. For goods, tax is based on the delivery location. If a business in Alberta (which only has GST) ships a product to Ontario (which has HST at 13%), the sale is subject to Ontario’s HST rate. The same principle applies to services, though additional factors include where the service is performed and where the benefit is received.
For digital products and services, special rules require non-resident vendors to collect tax. Since 2021, foreign businesses selling digital services—such as streaming subscriptions or online courses—to Canadian consumers must register for GST/HST if their sales exceed $30,000 annually.
Certain industries have unique tax rules. Passenger transportation services are taxed based on where the trip begins. A taxi ride starting in an HST province but ending in a GST-only province is subject to HST. Real estate transactions are taxed based on the property’s location, meaning a business selling a rental unit in Nova Scotia must charge 15% HST, even if the seller is based elsewhere.
Registering and Charging
Businesses must determine whether they need to register for GST/HST. Most must register once taxable sales exceed $30,000 in a 12-month period. This threshold applies to worldwide sales, so even businesses with minimal Canadian sales must track total revenue. Voluntary registration is available for businesses below this threshold, allowing them to claim input tax credits.
Once registered, businesses receive a GST/HST number from the CRA and must begin charging tax. Invoices must include the tax number, applicable rate, and a breakdown of the amount collected. Incorrect or missing details can lead to denied input tax credits for customers. For sales over $100, additional details such as the buyer’s name and a clear statement that the tax is included or separately stated are required.
Some sales are exempt from GST/HST, including basic groceries, residential rent, and most healthcare services. Businesses selling both taxable and exempt goods must track each category separately. Zero-rated goods, such as prescription drugs and exports, require businesses to charge 0% tax while still allowing them to claim input tax credits.
Input Tax Credits
Managing input tax credits (ITCs) reduces a business’s net tax liability. When a company incurs expenses related to commercial activities, it can recover the GST or HST paid by claiming ITCs. However, not all expenses qualify, and errors can lead to reassessments.
Eligible expenses include inventory purchases, rent, utilities, professional services, and equipment. ITCs cannot be claimed on personal expenses, membership fees in social or recreational clubs, or most meal and entertainment costs beyond the 50% deductibility limit set under section 67.1 of the Income Tax Act. Businesses using assets for both commercial and personal purposes, such as a company vehicle, must allocate ITCs based on business use. The CRA may request supporting records, so businesses must keep invoices, contracts, and proof of payment.
Cross-Border Factors
Businesses engaged in international trade must understand GST/HST implications for imports and exports.
Exports of goods and services are zero-rated, meaning businesses do not charge GST/HST but can still claim input tax credits. Documentation requirements are strict—exporters must retain proof of shipment, such as bills of lading or customs declarations, to substantiate zero-rated sales. Failure to provide adequate records could result in tax assessments.
Imports are subject to GST at the border, calculated on the customs value. Businesses registered for GST/HST can recover this tax as an input tax credit, but non-registered entities cannot. Since 2021, non-resident vendors selling digital products or services to Canadian consumers must collect GST/HST if they exceed the $30,000 threshold.
Filing Obligations
Once registered, businesses must file GST/HST returns regularly. Reporting frequency depends on annual taxable revenue: entities earning under $1.5 million typically file annually, those between $1.5 million and $6 million file quarterly, and those exceeding $6 million must submit monthly returns. More frequent filing benefits businesses with significant input tax credits by accelerating refunds and improving cash flow.
Late or incorrect filings result in penalties and interest charges. The CRA imposes a late-filing penalty of 1% of the outstanding tax, plus 0.25% for each full month overdue, up to 12 months. Interest accrues daily on unpaid balances at the prescribed rate, which is adjusted quarterly. Businesses that repeatedly miss deadlines may face additional scrutiny, increasing audit risks. Many use automated accounting software to track tax liabilities and generate filings accurately.