Indirect tax ebook - Canada

General Tax Application

 The GST of 5% is applied federally to the value of the consideration on most goods and services supplied or imported into Canada. HST at 13% is reported on the same return as the GST and entities that are registered for GST are also automatically registered for HST. Certain place of supply rules apply to determine when to charge the appropriate rate for GST or HST.

Certain goods and services, such as exports, basic groceries and prescription drugs are generally zero-rated, i.e. taxed at 0%. GST is not collected on zero-rated supplies but the supplier is entitled to claim ITCs for the GST or HST paid on related inputs.

Goods and services such as financial services, health and educational services are exempt. No GST or HST is charged on exempt supplies. However, unlike zero-rated supplies, ITCs cannot be claimed for expenses related to making exempt supplies.

Generally, in the province of Quebec the rules governing the application of QST have been harmonized with those for GST. However, one exception in Quebec is the taxation of financial services. For GST/HST such services may be exempt which restrict their ITC claims. However, in Quebec, financial services are zero-rated which entitle the financial institution the opportunity to claim ITRs.

Most QST registrants are entitled to recover QST paid on expenses by claiming ITRs in relation to their taxable revenue. Large businesses with revenues in excess of $10 million are restricted from claiming refunds of ITRs on certain expenses such as utilities, fuel, telecommunication and meals and entertainment.

In the province of Quebec, QST currently applies at the rate of 7.5% of the consideration for a taxable supply plus the applicable GST resulting in an effective rate of 7.875%.

The provincial RST is generally applicable on most tangible personal property and services for the repair, maintenance, installation, and other services related to such taxable property. Real property, royalties and intangible personal property are not taxable for RST purposes with the exception of software. With the exception of specifically defined custom software, most software and related services are subject to the provincial RST.

Generally, the RST rates vary from 5% to 10%. Special rates can apply to the sale of alcohol, insurance and admissions.

All RST provinces have unconditional exemptions for certain supplies such as basic groceries, health supplies and books. Conditional exemptions also apply to goods purchased for the purpose of resale and in some provinces, certain machinery and equipment used directly in manufacturing goods for resale. However, exemption certificates or other exempting documentation must be obtained by the vendor to support the exemption.  

• Introduction
• Scope
• Registration
• Tax rates
• Reporting & filing
• General tax application/Time of supply