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In Canada, all online businesses are taxed just as brick-and-mortar businesses are. Over the past several years, internet sales have grown significantly as most businesses run online stores and can deliver their products right to their customers’ doorsteps. While some retailers sell their products, both in-store and online, others operate solely online. Regardless of the nature of business you operate, it is essential to understand your tax obligations as a business owner in Canada.
‘Should I charge GST or HST on goods sold to other provinces?’ This is one of the most common questions among business owners and managers who run nationwide businesses. Note that every province has a different rate, and it can be challenging to incorporate such details in your pricing strategy. The federal government has set strict laws and regulations, and there is a good chance you will face harsh penalties for failure to charge the right tax.
GST or HST?
The Harmonized Sales Tax (HST) is simply the combination of the provincial PST and Federal GST into a value-added tax. While not all provinces have HST, Nova Scotia, Ontario, New Brunswick, Newfoundland, and Prince Edward Island provinces have HST. Additionally, Manitoba, Saskatchewan, and Quebec provinces have GST and their own PST (Provincial Sales Tax). In Alberta, the provincial administration only levies GST and doesn’t have a PST.
GST/HST on goods sold
Generally, HST and GST are charged in the specific province where the products are delivered. It is, therefore, important to establish a distinction between ‘physical delivery’ and ‘legal delivery.’ The latter signifies that the buyer or consumer will take responsibility for the product from the seller. On the other hand, physical delivery occurs when the consumer gets the product. Often, the place of physical product delivery determines the type of tax to be applied. So, to decide whether or not you should charge GST or HST, check the regulations of the province where the product will be delivered.
So, should you charge GST or HST on service?
In Canada, services are taxed differently from tangible goods. The consumer’s or customer’s business address is the primary determinant of the specific tax to be charged. In case there is no billing address, the location where the service will be performed will determine the tax rules to be applied. In a case where there is no business address and a particular service is performed in two provinces equally, the one whose tax rates are high determines the tax rules. In case a non-resident of Canada has ordered a specific service, neither HST nor GST is levied.
Different tax rules in different Canadian provinces make the entire taxation system complicated. Unfortunately, there is little business owners can do to get around the tax paperwork and bookkeeping related to their sales. Instead of limiting the specific provinces where you can sell goods or offer services, you can focus on understanding when to charge GST or HST.