Value Added Tax (VAT), known as Goods and Services Tax (GST) in Canada, was implemented in 1991 by the Federal Canadian Government, The legal basis of the GST in Canada is the Excise Tax Act (GST Act).
All taxes are administered by the federal Canada Revenue Agency. The only exception is in Quebec where GST is administered by the provincial agency, Revenue Quebec.
In 1991, the Canadian Federal Government intended to simplify the provincial GST system and promoted the idea of a single national GST called ‘harmonized sales tax (HST)’. In the participating provinces, a higher GST rate has been applied which included the federal 5% GST and the provincial rate, ranging between 8-10%. The participating provinces have repealed their local GST rules and apply the federal rules. In the provinces who did not participate, the effective rate might vary on provincial basis.
Harmonised Sales Tax (HST) Rate: 13 -15% including the federal GST component of 5%
Quebec Sales Tax (QST) Rate: 9.975 percent
Provincial Sales Tax (PST) is levied in British Columbia, Saskatchewan and Manitoba. The standard rate of PST is 6-8%.
Zero GST Rate
There are also goods and services taxable at 0% or exempt from GST. Examples of 0% supplies include exports of goods and services, basic foodstuffs and international transportation. Examples of exempt supplies include financial transactions, supplies by charities, healthcare services and education services.
Supplies of goods and services are taxable when these are performed by a person acting in the course of a commercial activity and the place of supply is in Canada.
‘Commercial activity’ means any of the following activities:
A business is required to register for GST in Canada when the taxable supply exceeds the registration threshold of CAD$30,000. Below this amount the business is considered as small enterprise. Persons required to register must submit the application to the Canada Revenue Agency within 30 days following the first taxable supply performed in Canada. The application can be submitted online or by mail, fax or phone.
The tax authority requires the following information:
A non-resident business that does not carry on business in Canada but requests orders for the supply of goods in Canada or enters into an agreement to supply certain goods, services or intangible property in Canada, may register on a voluntary basis. A non-resident business does not require to appoint a tax representative in Canada to register for GST. However, security deposit should be provided to the authority in case the non-resident business has no permanent establishment in Canada.
The general amount of the deposit is 50% of the estimated net tax position of the first year of operation. The deposit might vary between CAD$5,000 – CAD$1 million.
The following are activities that are exceptions from requiring to register for GST/HST purposes:
In addition to the mandatory registration requirements, other persons might opt to register voluntarily under GST.
A business whose annual taxable and zero-rated supplies were less than CAD$30,000 in the four preceding calendar quarters are considered as small enterprises and can register voluntarily. A person whose turnover exceed CAD$30,000 must register for GST/HST within one month following the first supply that causes the breach of threshold.
GST or federal component of the HST is self-assessed in case of importation of goods and services that are acquired from outside of Canada, and not used at least 90% in commercial activities. Domestic reverse charge is not applicable in Canada.
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There is no general obligation to issue an invoice for a transaction based on the GST Act. In case of taxable supply, the supplier must indicate either the consideration or the GST payable. The indication can be performed in the following three ways:
Regarding the general transactions the legal requirement of the prescribed ways are met if the supplier gives clearly visible notice to the customer at the place where the supply is made.
In the GST Act, there is no specific form of the invoice; however, in case of claiming the input tax the customer might require supporting documentation which could be
The input tax credit cannot be claimed before the customer has received the information required to determine the amount of the claimable VAT. The content of the documents depends on the total amount of the supply.
You can see below the information generally required:
Invoices may be in electronic or in paper format.
Every taxable person must file a GST return following the reporting period which could be annual, quarterly and monthly. The reporting period is determined based on the taxable person’s turnover. This threshold amount is based on the consideration received regarding the taxable supplies performed in Canada, excluding certain type of transactions e.g. zero rated exports and financial services.
The reporting periods are as follows
In case of monthly and quarterly frequency the returns are due on the last day of the month following the reporting period. The annual returns should be submitted within 3 months following the reporting period.
Businesses with taxable supply above CAD$1.5 million are obliged to submit the GST returns electronically.
Group registration and joint GST return submission is not allowed in Canada.
The return filing regulations are the same for the registered non-resident taxable persons.
Jan 2022 Proposed implementation of a Digital Service Tax (DST)
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