Understanding how to calculate GST/HST correctly is essential for business owners in Canada. Whether you’re selling products or services, knowing the right tax rates and how to apply them will ensure compliance with the Canada Revenue Agency (CRA) and prevent costly errors. This guide will walk you through everything you need to know about GST/HST calculations.
Understanding GST/HST Rates Across Canada
The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) vary by province:
- GST (5%): Applies in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon.
- HST: A combination of GST and provincial sales tax, with rates of:
- 13% in Ontario
- 15% in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
- Zero-Rated Goods and Services (0%): Some items, like basic groceries and medical devices, are taxed at 0%.
- Exempt Items: Certain services (e.g., health care and financial services) are tax-exempt, meaning businesses do not charge GST/HST.
How to Calculate GST/HST on Sales
To calculate the total price, including GST/HST, use the following formula: Total Price = Product/Service Price × (1 + Applicable Tax Rate)
Example 1: Charging GST (5%) in Alberta
If you sell a product for $100 in Alberta: $100 × (1 + 0.05) = $105 (Total Price including GST)
Example 2: Charging HST (13%) in Ontario
If your service costs $200 in Ontario: $200 × (1 + 0.13) = $226 (Total Price including HST)
How to Extract GST/HST from a Total Price
If you need to determine how much GST/HST is included in a price that already has tax applied, use this formula: Tax Amount = Total Price ÷ (1 + Tax Rate) × Tax Rate
Example 3: Extracting GST (5%) from a $105 Total
$105 ÷ 1.05 × 0.05 = $5 (GST Amount)
Example 4: Extracting HST (13%) from a $226 Total
$226 ÷ 1.13 × 0.13 = $26 (HST Amount)
Charging GST/HST Correctly
- Ensure invoices clearly list the GST/HST amount separately.
- If you sell to customers in different provinces, charge the tax rate based on the customer’s location.
- Use the CRA’s GST/HST registry to confirm if a supplier or service provider is registered to charge tax.
Filing and Remitting GST/HST
Businesses registered for GST/HST must:
- Collect GST/HST on taxable sales.
- File GST/HST returns (monthly, quarterly, or annually based on revenue).
- Remit collected taxes to the CRA by the deadline to avoid penalties.
Final Thoughts
Calculating GST/HST accurately is a key part of running a compliant and financially sound business in Canada. By understanding tax rates, applying the correct calculations, and keeping clear records, you can ensure smooth tax filings and avoid costly mistakes. If you’re unsure about specific tax obligations, consulting a tax professional is always a good idea.