Small businesses in Ontario and across Canada have to understand how provincial and federal sales taxes work to be able to file their corporate taxes correctly. While federal sales tax rates are the same across the country, provincial rates vary and can even be combined with the federal sales tax to make a single payment called the HST.
Let’s take a look at who has to pay HST, and how to calculate HST payments and rebates for small businesses in Ontario.
What is the Ontario HST?
HST, or Harmonized Sales Tax, is Ontario’s way to combine federal and provincial sales taxes into a single payment.
Federal sales tax, or GST (Goods and Services Tax) is paid at a fixed rate of 5% throughout the entire country. Provincial tax rates, on the other hand, vary from province to province – for example, British Columbia charges a 7% provincial sales tax, while Alberta and the three territories charge no provincial sales tax at all.
In Ontario, the provincial sales tax is 8%. Since 2010, this amount is combined with the GST to make a single 13% tax called the HST. The Ontario HST is simply the federal and provincial sales tax rolled into one, a way to simplify tax payments for Ontario businesses.
Who has to pay HST in Ontario?
The HST is applicable to taxable supplies of property and services made in Canada. HST is paid by consumers at the point of sale. The business is responsible for collecting the HST and then paying it to the CRA (Canada Revenue Agency), which then allocates the provincial portion of the payment to that province’s government.
There are several possible exceptions to paying HST:
Sales made by small suppliers
Ontario small businesses that earn less than $30,000 per quarter or for four consecutive quarters are exempt from paying the HST.
Exempt goods and services and special situations
Sometimes Indians, Indian bands, and band empowered entities are exempted from paying the GST/HST for taxable supplies. Moreover, specific groups and organizations, including certain provincial and territorial governments, are not consistently required to pay HST.
The sale of a house or farmland, or the lease of a residence, may also be exempt from HST. Keep in mind that there are GST/HST rebates available on several types of sales, and you can recover some HST by claiming input tax credits (ITCs).
A product may also be ‘zero-rated’, meaning it falls into a category of goods that is taxable, but is taxed at a rate of 0%. This category includes certain medical supplies, foods, and livestock. If you are not sure whether you should be charging HST on the good or service you provide, you can always consult a professional small business tax accountant to learn more.
Sales made to another province or territory
If a product is shipped to another province, the sales tax in that province, and not the Ontario HST, will apply to the purchase.
Sales made outside of Canada
Remember also that all goods imported into Ontario from outside of Canada are subject to the HST, but goods sold outside of the country are exempt.
How to calculate the Ontario HST
Once you have registered your Ontario business, you will be issued a GST/HST number and a Business Number. You must use one of these to collect, report and remit HST to the CRA. HST payments are made once a year when you file your business tax returns with the CRA.
To calculate the amount of HST you must pay, begin by verifying that you are charging the correct amount of HST on each sale. In Ontario, HST is 13%.
When you fill out your GST/HST return, calculate the amount of ITCs you can claim for that year. A certified corporate tax accountant can help you quickly find out which ITCs you qualify for.
Deduct your ITCs form the HST you charged your customers to find out your net tax. If the total tax amount you charged exceeds your Input Tax Credits (ITCs), you should remit the difference to the CRA. Conversely, if the total tax amount you charged is less than your ITCs, you are eligible to request a refund.
T2inc business tax accountants know all about Ontario HST
Don’t wait for tax season before figuring out whether you should be paying HST! If you do not charge your customers HST, and you discover that you were supposed to, your business will still be responsible for paying the correct percentage to the CRA.
Give your business a chance to make higher profits! Contact the tax accountants at T2inc and get help calculating the Ontario HST.
Frédéric Roy-Gobeil
CPA, M. TAX
As President of T2inc.ca and an entrepreneur at heart, I have founded many start-ups such as delve Labs and T2inc.ca. A former tax specialist at Ernst & Young, I am also a member of the Ordre des comptables professionnels agréés CPA and have a master's degree in taxation from the Université de Sherbrooke. With a passion for the world of entrepreneurship and the growth mindset, I have authored numerous articles and videos on the industry and the business world, as well as on accounting, taxation, financial statements and financial independence.
