Tax Guide for Businesses with Customers in Canada
GST, HST and Provincial Sales Tax Rates in Canada
Canada imposes a sales tax at the Federal level, called the goods and service tax (GST). The standard rate of GST is 5%. Certain provinces levy an additional provincial tax, which is combined with the GST rate and is referred to as the harmonized sales tax (HST). HST applies to the same base of goods and services as GST.
British Colombia, Manitoba, and Saskatchewan continue to impose their own provincial sales tax (PST), separate from but in addition to the federal GST rate.
Quebec has implemented its own sales tax, called the Quebec sales tax (QST). QST is levied separately from but addition to the federal GST rate.
Certain transactions are subject to the zero rate (0%), such as basic groceries, prescription medications, and exports. Financial transactions, healthcare services, and educational services are examples of exempt supplies.
GST/HST Registration Thresholds in Canada
- GST/HST registration threshold for domestic established sellers: Any person carrying out business in Canada, including a non-resident, is required to become registered for GST/HST if their worldwide taxable sales exceed the registration threshold of CAD 30,000 annually (CAD 50,000 annually if the person is a public service body).
- GST/HST registration threshold for non-established sellers: Non-residents carrying out business in Canada should be registered when their worldwide taxable sales exceed the registration threshold of CAD 30,000 annually.
- GST/HST registration threshold for non-resident sellers of Digital Services: obligation to register arises when applicable revenues exceed the threshold of CAD 30,000 over any 12-month period beginning on or after that date.
Canadian GST/HST Number Format
Individuals: TIN is referred to as the Social Insurance Number (SIN)123456789. This number is a unique, 9-digit number and is the standard identifier for Individuals
Businesses: GST/ HST number is referred to as the GST/HST Program Account Number. It is a combination of a business number and Canada Revenue Agency (CRA) Program Account number.
A Business Number is a unique, 9-digit number and the standard identifier for businesses that is unique to a business or legal entity.
Canada Revenue Agency (CRA) program account numbers are two letters and four digits attached to a business number and are used for specific business activities that must be reported to the CRA.
- Corporation income tax program account numbers: This identifier will include the business number followed by the letters RC and a four-digit reference number Format: 123456789 RC 0001
GST/HST on Digital Services in Canada
GST/HST for digital economy businesses, including digital platform operators has been in effect since July 1, 2021. Non-resident vendors that supply digital services to consumers in Canada should be required to register for GST/HST, collect, and remit GST/HST on their sales of taxable supplies to consumers in Canada.
GST/HST Rate:
Below are the current GST/HST tax rates on cross-border sales of digital services:
- 5% (GST) in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
- 13% (HST) in Ontario
- 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
Provincial taxes may be levied as well. For example, Quebec imposes QST on digital services supplied by non-residents to Quebec consumers.
Taxable digital services in Canada include:
- E-books, images, movies, and videos: In tax language, these products are in a category usually called Audio, visual, or audio-visual products.
- Downloadable and streaming music, whether buying an MP3 or using a service like SoundCloud or Spotify. These products also fall in the audio category.
- Cloud-based software and as-a-Service products, such as Software-as-a-Service (SaaS), Platform-as-a-Service (PaaS), and Infrastructure-as-a-Service (IaaS).
- Websites, site hosting services, and internet service providers.
- Online ads and affiliate marketing.
Will your business need to pay GST/HST on digital services in Canada in 2024?
Learn More About GST/HST on Digital Services in Canada
Marketplace & Platform Operator Rules in Canada
Non-resident distribution platform vendors who sell taxable digital products or services to Canadian consumers, or entities who are not registered under the normal GST/HST regime, should register, charge and collect GST/HST on qualifying supplies. A simplified registration and reporting system should be available for non-resident platform operators.
Platforms supplying qualifying goods and short-term accommodation should also need to register, charge and collect GST/HST on qualifying supplies.
In recent years, changes have been introduced to the GST/HST rules on e-commerce on the federal level, along with Quebec, Saskatchewan, Manitoba and British Columbia.
For example, British Columbia imposes an obligation on marketplace facilitators to register and collect PST on taxable sales facilitated through the marketplace in the province.
Entities that meet the definition of marketplace facilitator in British Columbia are to collect and remit PST on retail sales of:
- Goods that are located within Canada at the time of the sale and are sold to a person in B.C.,
- Software for use on, or with, an electronic device ordinarily situated in British Columbia
- Accommodation in the province
- Taxable services, other than legal services, to a person in British Columbia
In British Columbia, marketplace facilitators that make or facilitate less than CAD 10,000 in the previous 12 months should not be required to register under the marketplace facilitator rules.
Invoice Requirements in Canada
Businesses should issue tax-compliant invoices including the following information:
- Document & general transaction information
- Invoice date
- Supplier information
- Suppliers business name
- Suppliers business number
- Customer information
- Buyers name or trading number
- Financial transaction information
- Total amount paid or payable
- Total amount of GST/HST charged, or the amount paid for each taxable supply (other than zero-rated) includes the GST/HST at the applicable rate
- Indication of what items are taxed at GST rate and what are taxed at the HST rate
- Description of property or services
- Terms of payment
Note that the requirements above should apply to invoices with a total sale of CAD 500 or more. Invoices for total sales under CAD 100 and between CAD 100 and CAD 499.99 should have less requirements.
It is possible to issue invoices electronically in Canada. However, the invoice must, either alone or in combination with another eligible document or documents, contain the information required for the recipient to be able to claim the input tax credit. Businesses are required to follow specific requirements for electronic records.
E-Invoicing & Digital Reporting for Canada
E-invoicing is not mandatory in Canada. From the end of 2018, all federal suppliers (Business to Government B2G) should be able to receive e-invoices. This was intended to promote the use of electronic invoices in the country.
- Storage: Every business that uses e-invoicing must have a system to store them. The storage process should guarantee the invoices' confidentiality, integrity, and availability. It should also be easy to retrieve the invoices when needed.
- Archiving: Invoices must be archived for a minimum of six years.
- Format: The Canadian government has mandated that all e-invoices be in the Universal Business Language (UBL) format. This is an international standard that ensures compatibility between different software systems.
The E-invoicing and e-procurement platform PEPPOL was introduced in Canada in 2018. It allows businesses to easily send and receive invoices electronically and track orders and payments. The Pan-European Public Procurement Online (PEPPOL) network is a European initiative that enables businesses to send and receive e-invoices. Businesses are already using PEPPOL in Canada.
Canada introduced a sales data reporting obligation for restaurant and remunerated passenger transport services. It is a fiscalization regime that requires businesses in scope to report their sales data through a certified system to the tax authority within 48 hours.
Learn more about E-Invoicing in Canada
Governmental Body Responsible for E-invoicing and Digital Reporting in Canada
- The Canadian Revenue Agency (CRA) is responsible for administering and enforcing the tax laws of Canada. Taxpayers can refer to the “E-services for business” page to handle tax matters.
- The Canadian government has also set up a task force to study the feasibility of e-invoicing and how they can implement it across all levels of government. This task force is called the E-Invoicing Advisory Group.
GST/HST/PST Payments and Returns in Canada
Full GST/HST Returns
- GST/HST Return Name: Form GST34-2
- Filing Frequency: Reporting periods vary according to the total annual revenues from taxable supplies made in Canada by the particular business and any associated entities. Note that different rules apply for PST purposes and vary by province.
- Annually: total annual revenue up to CAD 1.5 million
- Quarterly: total annual revenue from CAD 1.5 million to CAD 6 million
- Monthly: total annual revenue over CAD 6 million
- Online filing: Electronic filing is allowed in Canada, but not mandatory
- Annual Return: No
- Filing deadline:
- Monthly/quarterly: One month after the end of the reporting period
- Annually: 3 months after fiscal year-end
- Payment deadline: When a due date falls on a Saturday, a Sunday, or a public holiday recognized by the CRA, the payment deadline should be the following business day.
- Monthly/quarterly: One month after the end of the reporting period
- Annually: 3 months after fiscal year-end
- Payment currency: Canadian Dollars (CAD)
- Language: English and French
- Local VAT acronym: GST/HST
A Simplified System for E-commerce GST/HST Return should be available for non-resident taxpayers supplying digital services to final consumers in Canada.
Penalties in case of late filings or misdeclarations
- Penalties for late payment and filing:
- Interest paid on the amount not paid or remitted, compounded daily.
- Penalty equal to 1% of the outstanding balance, with an additional 0.25% per month for each month the return is outstanding. This should apply up to a maximum of 12 months.
- Penalty equal to CAD 250 for failing to file
- Penalties for errors: Administrative penalties and criminal offenses may apply when there is an intention to hide sales and evade GST/HST
- Penalties for fraud: For false statements and omitting to report information in a report or other document, the greater of CAD 250 or 25% of the tax owed or over claimed
Fonoa does not provide professional tax opinions or tax management advice specific to the facts and circumstances of your business and that your use of the Specification, Site, and In addition, due to rapidly changing tax rates and regulations that require interpretation by your qualified tax professionals, you bear full responsibility to determine the applicability of the output generated by the Specification and Services and to confirm its accuracy. No professional tax opinion and advice. Fonoa does not provide professional tax opinions or tax management advice specific to the facts and circumstances of your business and that your use of the Specification, Site, and In addition, due to rapidly changing tax rates and regulations that require interpretation by your qualified tax professionals, you bear full responsibility to determine the applicability of the output generated by the Specification and Services and to confirm its accuracy.
