Understanding provincial tax obligations in Canada
Four Canadian provinces levy separate sales taxes
INSIGHT ARTICLE |
In Canada, the federally applied Goods and Services Tax (GST) is collected on taxable supplies in all provinces at the rate of five percent. In addition, some provinces have harmonized their provincial sales taxes with the GST, resulting in a combined GST/harmonized sales tax (HST). Where a taxable supply is made in a harmonized province, HST, consisting of the five percent federal portion plus an additional provincial component, is collected by the supplier and remitted to the federal government.
The federal government then redistributes the appropriate portion of the provincial tax collected to the provinces. The GST/HST is a value-added tax that generally applies to the supply of goods or services at each stage of delivery.
However, four provinces, British Columbia, Manitoba, Saskatchewan, and Quebec, have not harmonized their sales taxes and still collect a separate provincial tax.
Provincial sales taxes
The Quebec Sales Tax (referred to as QST or TVQ) is a value-added style sales tax levied at the rate of 9.975 percent on taxable supplies made in Quebec. The QST has its own legislation and requires separate registration and returns. However, the QST rules have largely been harmonized with the GST/HST rules.
Retail sales taxes–British Columbia, Manitoba and Saskatchewan and
The sales taxes in the remaining three provinces, British Columbia, Saskatchewan and Manitoba are single stage retail sales taxes similar to the sales taxes in many U.S. states. As with U.S. sales taxes, certain entities and certain categories of goods and services are exempt, while other categories, such as liquor, may face higher rates.
Each province has its own legislation, registration and returns. The concept of the retail sales taxes is generally the same for the three provinces. However, there are also many differences, particularly in the list of services that may be taxable in one province but not in another.
The provincial sales tax rates are as follows:
- British Columbia: 7 percent
- Manitoba: 8 percent
- Saskatchewan: 5 percent
Should you register?
The next question for U.S. businesses is whether they need to become registered for sales taxes in any one of these provinces. In Manitoba, businesses that make taxable supplies and have a permanent establishment in the province must register. The definition of “permanent establishment” is similar to that used for state tax purposes in the U.S. In the other three provinces, businesses are required to register if they are carrying on business activity and making taxable supplies in the particular province. If a business maintains brick-and-mortar locations in a province, then that business almost certainly has to register. Additionally, the higher the business’s volume of sales and any related activities in the province, the more likely registration is necessary. (The related article referenced above offers further guidance.)
Also, just as with sales and local taxes in the United States, the obligation to pay consumption taxes in these provinces in Canada is joint and several. That is, if the seller fails to collect and remit consumption taxes, then the obligation to remit the applicable tax may fall on the business’s customer. Given that provinces across Canada are stepping up sales tax collection efforts, a business needs to consider how its customers will react if they are targeted for collection of a sales tax that the vendor failed to collect and remit.
The conservative approach? Register, collect and remit taxes in all provinces where sales are made. If a customer believes it is exempt from those taxes, leave it to the customer to claim the exemption.