One of the key challenges facing any government is to try to find efficiencies without disrupting markets. This is arguably the best way of “making money out of nothing”; without having to create new revenue streams or increase taxes, when the government can decrease bureaucracy without sacrificing services, there are net savings. That’s one of the goals behind HST, the Harmonized Sales Tax.
HST is essentially a merger between Provincial Sales Tax (PST) and the Goods and Services Tax (GST); it does have some distinct qualities that make it preferable to PST for some folks, however. As I mentioned above, HST is arguably more efficient, especially if every province gets on board; for provinces that charge HST, having a GST account with the Government of Canada is sufficient for collecting sales taxes. On the flip side, provinces that charge both PST and GST require you to register to collect taxes when selling in their province.
The second advantage to HST is that it’s a value-added tax. Without getting into the gory details of value-added tax, what it means is that business inputs are not taxed – they’re remitted. In other words, the tax is only on the revenue generated by the sale of a good or service – not on it’s production. This means when you incur expenses that are essential to starting or operating your business, the HST you were charged on the expenses may be credited back to you, through a system known as input tax credits.
HST has its detractors, however. There are some who worry that HST unfairly places the tax burden on individuals instead of businesses, as input tax credits reduce a business’ taxes. The counter-narrative to this is that taxation always results in consumer loss, through higher prices, lower wages, or other measures businesses might take to increase profitability in the face of a tax. There is still a strong argument that HST unfairly limits the purchasing power of poor and lower-middle-class Canadians; the government has addressed this by offering an HST credit.
It’s important to remember what taxes you need to charge will vary depending on which province you’re selling to. There are presently 5 provinces with HST: The four maritime provinces and Ontario. Keep in mind that depending on the rate that these provinces would charge for PST, the HST rate might be different. For example, Ontario has an 8% PST rate, while New Brunswick has a 10% PST rate; as a consequence, Ontario’s HST is 13% (8% + 5% GST), while New Brunswick’s is 15% (10% + 5% GST). You should also be aware of what HST isn’t applicable to; learn more on the government’s Type of Supply page.
Knowing about what’s taxable, what you can get tax credits for, and how to charge taxes in each province is essential to any business operating in Canada. Compass Accounting can help ensure you know exactly how taxes on goods and services work, so you can make the most out of your business.