Harmonized Sales Tax(HST)

Harmonized Sales Tax (HST) is a consumption tax system that combines a federal Goods and Services Tax (GST) with a provincial sales tax to create a single, harmonized tax rate on most goods and services in participating provinces. Introduced as a measure to streamline tax administration, reduce compliance costs, and enhance economic efficiency, the HST has generated both praise and criticism since its inception

How much is HST?

The Harmonized Sales Tax (HST) rate varies depending on the province or territory in Canada. As of my last update in January 2024, the HST rate is as follows:

1. Newfoundland and Labrador: 15%
2. Nova Scotia: 15%
3. New Brunswick: 15%
4. Prince Edward Island: 15%
5. Ontario: 13%

It’s important to note that some provinces do not use the HST system and instead have separate provincial and federal sales taxes. Additionally, certain goods and services may be exempt or subject to a reduced rate under the HST system. For the most up-to-date information on HST rates and regulations, it’s advisable to consult official government sources or tax authorities.

Zero-rated and exempt supplies

HST applies to most, but not all, goods and services sold in Canada. Zero-rated goods and services are taxable at the HST rate of 0% across Canada and include:

• groceries
• agricultural products and most farm livestock
• most fishery products
• prescription drugs and certain medical devices
• feminine hygiene products
• exports
• many transportation services where the origin or destination is outside Canada

HST  does not apply to exempt supplies of goods and services. This means businesses do not charge HST  on these supplies and are generally not able to claim ITCs on purchases used to provide these supplies. Generally, a business cannot register for HST if it provides only exempt supplies such as public transit, residential rent or medical care.

Under the Harmonized Sales Tax (HST) system in Canada, imports and exports are subject to specific tax treatments:

HST on Imports

•  Imports into Canada are generally subject to the federal Goods and Services Tax (GST) at a rate of 5%. In provinces that participate in the HST system (such as Ontario, Nova Scotia, New Brunswick, Newfoundland and Labrador, and Prince Edward Island), the HST rate applies instead of the GST.
• When goods enter Canada, the Canada Border Services Agency (CBSA) assesses and collects the applicable HST at the point of entry. Importers must pay the HST to CBSA. Importers may also need to pay customs duties and other applicable taxes or fees in addition to the HST on imports, depending on the nature of the goods and their country of origin. Businesses registered for the GST/HST can generally claim input tax credits (ITCs) to recover the HST paid on imports, provided they use the imported goods or services in their commercial activities.

 HST on Exports

•  Exports from Canada are generally zero-rated for HST purposes. This means that no HST is charged on exported goods and services.
•  Exporters can claim input tax credits (ITCs) to recover any HST paid on inputs used to produce exported goods and services.
•  Exporters may need to provide appropriate documentation, such as proof of export, to support their zero-rating claims and ensure compliance with tax regulations.
•  Zero-rating exports helps to ensure that Canadian goods and services remain competitive in international markets by avoiding the imposition of domestic taxes on exports.

Overall, understanding the HST implications on imports and exports is essential for businesses engaged in international trade to comply with tax regulations and effectively manage their tax obligations.

Who has to pay HST?

In Canada, the Harmonized Sales Tax (HST) is a consumption tax that is typically paid by consumers on most goods and services purchased within provinces that participate in the HST system. However, the responsibility for collecting and remitting the HST to the government falls primarily on businesses that make taxable supplies.

Here’s a breakdown of who has to pay HST:

Consumers

• Consumers are responsible for paying the HST on most taxable goods and services they purchase in provinces that participate in the HST system. This includes items such as clothing, electronics, restaurant meals, and professional services.
•  The HST is usually included in the total price of goods and services advertised or displayed for sale. Consumers pay the HST indirectly as part of the purchase price.

 Businesses

• Businesses that make taxable supplies are generally responsible for collecting and remitting the HST to the government on behalf of consumers.
• When a business sells a taxable good or service, it adds the applicable HST rate to the sale price and collects the tax from the consumer.
•  Businesses must register for a GST/HST account with the Canada Revenue Agency (CRA) if their annual taxable sales exceed the small supplier threshold (currently $30,000). Once registered, they are required to charge, collect, and remit the HST on taxable supplies.
•  Businesses can claim input tax credits (ITCs) to recover any HST paid on inputs used in their commercial activities, reducing their overall tax liability.

 Importers

•  Importers are responsible for paying the HST on most goods imported into Canada. The Canada Border Services Agency (CBSA) assesses and collects the applicable HST at the point of entry.
•  Importers can generally claim input tax credits (ITCs) to recover the HST paid on imports, provided the imported goods are used in their commercial activities.

 Specific Situations

There may be specific situations where individuals or businesses are exempt from paying or collecting HST, such as certain zero-rated or exempt supplies, sales to non-residents, or transactions involving registered charities or government entities. These situations are subject to specific rules and exceptions outlined in the tax regulations.

Overall, the responsibility for paying HST typically falls on consumers, who indirectly bear the tax burden through the purchase price of goods and services, while businesses play a crucial role in collecting and remitting the tax to the government.