GST vs HST Explained for Canadian Businesses
Introduction
One of the biggest sources of confusion for Canadian freelancers and small business owners is understanding the difference between GST and HST. These two sales tax systems can seem complicated, but understanding them is essential for proper invoicing and tax compliance. Let's break it down in simple terms.
What is GST?
GST stands for Goods and Services Tax. It's a federal sales tax of 5% that applies across Canada. In some provinces, GST is the only sales tax. However, in other provinces, GST is combined with provincial sales taxes.
What is HST?
HST stands for Harmonized Sales Tax. It's a combined federal and provincial sales tax that replaces the separate GST and PST (Provincial Sales Tax). HST rates vary by province but range from 13% to 15%.
Key Differences Between GST and HST
Structure
- GST: A single federal tax applied uniformly across Canada
- HST: A combined federal and provincial tax that varies by province
Tax Rates
- GST: Always 5%
- HST: 13% or 15% depending on province
Administration
- GST: Managed at the federal level only
- HST: Managed jointly by federal and provincial governments
Which Provinces Use GST vs HST?
Provinces Using HST (Harmonized Sales Tax)
- Ontario - 13% HST
- New Brunswick - 15% HST
- Nova Scotia - 15% HST
- Prince Edward Island - 15% HST
- Newfoundland and Labrador - 15% HST
Provinces Using GST + PST (Provincial Sales Tax)
- British Columbia - 5% GST + 7% PST = 12% total
- Manitoba - 5% GST + 8% PST = 13% total
- Saskatchewan - 5% GST + 6% PST = 11% total
- Quebec - 5% GST + 9.975% QST = 14.975% total
Provinces Using GST Only
- Alberta - 5% GST only
- Northwest Territories - 5% GST only
- Yukon - 5% GST only
- Nunavut - 5% GST only
How to Calculate GST and HST
Calculating GST (5%)
Formula: Amount × 0.05 = GST amount
Example: $100 × 0.05 = $5 GST
Calculating HST (13% Ontario)
Formula: Amount × 0.13 = HST amount
Example: $100 × 0.13 = $13 HST
Calculating Combined GST + PST (BC Example)
Formula: Amount × 0.05 + Amount × 0.07 = Total Tax
Example: $100 × 0.05 = $5 GST, $100 × 0.07 = $7 PST, Total = $12 tax
Need quick calculations? Use our free GST/HST calculator.
GST/HST Registration in Canada
If your annual revenue exceeds $30,000, you're required to register for GST/HST. Some benefits of registering include:
- You can claim Input Tax Credits (ITCs) for tax paid on business purchases
- You appear more professional to clients
- You can invoice with tax included
Tax-Exempt Supplies
Certain services are tax-exempt in Canada, including:
- Financial services
- Healthcare services
- Educational services (in some cases)
- Prescription medications
Charging Tax on Your Invoices
If you're registered for GST/HST, you must charge the appropriate tax on your invoices. When using our invoice generator, simply select your province and tax is automatically calculated.
Important Reminders
- Always check which tax system applies in your province
- If you're registered, you must charge and remit tax
- If you're not registered, you can't charge or claim tax
- Tax laws change - always stay informed
- When in doubt, consult a qualified accountant
Conclusion
Understanding GST vs HST is crucial for Canadian business owners. While the two systems have differences, both are essential for maintaining compliance with Canadian tax law. Make sure you understand which system applies in your province and incorporate it correctly into your invoicing process.
For quick tax calculations on your invoices, use our free GST/HST calculator, or try our invoice generator which automatically calculates the correct tax for your province.