What Is the Harmonized Sales Tax (HST)?
Canada's harmonized sales tax (HST) is a consumption tax paid by local consumers and businesses. As the name implies, it "harmonizes" (combines) the nation's federal goods and services tax and various provincial sales taxes. Five Canadian provinces use the HST.
Proponents of the HST argue it improves the competitiveness of Canadian businesses by simplifying their administrative costs, leading to lower prices for consumers.
- The harmonized sales tax (HST) is a combination of federal and provincial taxes on goods and services in five Canadian provinces.
- The HST tax rate is 15% in all participating provinces except Ontario, where it is 13%.
- The concept behind the HST was to streamline the recording and collection of federal and provincial sales taxes by combining them into a single, uniform levy across Canada.
- Foreign purchasers of Canadian products do not have to pay HST provided that the goods or services will be solely used outside of the country.
- Critics argue the HST shifts the burden of taxation to consumers, but proponents of the tax say it ultimately benefits consumers by lowering costs.
Understanding the Harmonized Sales Tax (HST)
The HST is paid by purchasers at the point of sale (POS). The vendor collects the tax proceeds by adding the HST rate to the cost of goods and services and then remits the collected tax to the Canada Revenue Agency (CRA), the tax division of the federal government. The CRA later allocates the provincial portion of the HST to the respective province's government.
Prior to the HST's introduction in 1997, Canadian sales taxes were divided into the federal sales tax (GST) and the provincial sales tax (PST). Each province had its own rates, resulting in significant differences in the sales taxes throughout Canada. The concept behind the HST was to streamline the recording and collection of federal and provincial sales taxes by combining them into a single, consistent levy across the country. Advocates argue it should reduce costs for businesses (and ultimately customers) since it simplifies their sales-tax-related bookkeeping.
The tax rate of the HST in all participating provinces except Ontario, where it is 13%.
Unfortunately, in practice, the HST can often complicate companies' lives instead. While the aim was to create a national sales tax, the Canadian government made adoption of the HST optional—and many provinces opted not to, keeping their separate systems and rates instead.
As a result, businesses operating across provincial lines or nationwide—either in physical locations or via e-commerce—have to deal with disparities in tax rates, depending on whether the customer is based in an HST province or a GST/PST province. (While the GST is 5% everywhere, the PST can range from 6% to 9.975%.)
Canadian Provinces and the Harmonized Sales Tax (HST)
Five of Canada's 13 provinces use the harmonized sales tax:
- Newfoundland/Labrador (joined 1997)
- New Brunswick (joined 1997)
- Nova Scotia (joined 1997)
- Ontario (joined 2010)
- Prince Edward Island (joined 2010)
Of the remaining Canadian provinces, British Columbia, Saskatchewan, Québec, and Manitoba apply the provincial system in addition to the separate federal sales tax. Several others apply only the federal goods and services sales tax and do not impose local sales taxes: Alberta, Northwest Territories, Nunavut, and Yukon.
In 2010, British Columbia (BC) adopted the HST but then abandoned it three years later. reinstating its provincial sales tax system after an estimated 55% of the province’s residents voted against the system.
Registering and Collecting the Harmonized Sales Tax (HST)
It is the responsibility of Canadian business owners located in one of the five provinces to collect and remit the HST. To start applying the sales tax, the business operator must register for a GST/HST account through the CRA, provided that the business makes $30,000 or more per year in total revenue.
Each province established its own percentage for PST collection and harmonized it with the GST when it joined the HST program. So the exact amount of HST could differ, depending on which of the five provinces a business operates. Originally, the rate ranged from 13% to 15%, but now almost every province imposes 15%.
So-called small suppliers—that is, business owners with firms earning less than $30,000 in annual revenue—are not required to charge or remit the HST. However. they can still voluntarily register to collect the tax, since doing so allows them to claim input tax credits on the goods and services that they purchase in the course of running their operations.
Exempted Goods and Services
While many goods and services are subject to HST, some are zero-rated or tax-exempt. A zero-rated commodity or service is one that has an HST tax rate of 0%. These include products like basic groceries, books, and many agricultural and fishery goods.
Foreign purchasers of Canadian products do not have to pay HST provided that the goods or services will be solely used outside of the country. However, non-residents visiting Canada, such as tourists, are required to pay HST. In some cases, they may qualify for an HST rebate.
The HST's Effect on Taxpayers
There is still a constant debate as to how the HST impacts consumers and taxpayers.
Critics claim that the HST shifts the tax burden from businesses to consumers. Proponents of HST argue that it actually lowers taxes. They say the HST system reduces the cost of doing business, which effectively lowers the prices of consumer goods and services.