Harmonized Sales Tax (HST) Definition

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Harmonized Sales Tax (HST) Definition

What Is the Harmonized Sales Tax (HST)?

The harmonized sales tax (HST) in Canada is a consumption tax paid by local residents and companies. It “harmonizes” (combines) the federal goods and services tax with numerous provincial sales taxes, as the name indicates. The HST is used in five Canadian provinces.

Proponents of the HST say that it boosts Canadian firms’ competitiveness by reducing administrative expenses, resulting in cheaper pricing for consumers.

Key Takeaways

  • The harmonized sales tax (HST) is a hybrid of federal and provincial taxes levied on products and services in five Canadian provinces.
  • Except for Ontario, the HST tax rate is 15% in all participating provinces.
  • The HST was designed to simplify the recording and collection of federal and provincial sales taxes throughout Canada by consolidating them into a single, standard charge.
  • Foreign buyers of Canadian items are exempt from paying HST if the goods or services will be consumed entirely outside of Canada.
  • The HST, critics say, increases the burden of taxes to consumers, while supporters claim it eventually helps consumers by decreasing prices.

Understanding the Harmonized Sales Tax (HST)

Purchasers pay the HST at the time of sale (POS).The seller collects the tax by adding the HST rate to the cost of goods and services and remitting the collected tax to the Canada Revenue Agency (CRA), the federal government’s tax division. The CRA then distributes the provincial part of the HST to the governments of the different provinces.

Prior to the implementation of the HST in 1997, Canadian sales taxes were separated into two categories: the federal sales tax (GST) and the provincial sales tax (PST).Each province had its own rates, resulting in substantial variations in sales taxes throughout Canada. The HST was designed to simplify the recording and collection of federal and provincial sales taxes throughout the nation by consolidating them into a single, uniform charge. Advocates claim that since it streamlines sales-tax-related paperwork, it should lower expenses for companies (and, eventually, consumers).

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15%

Except in Ontario, the HST is levied at a rate of 13% in all participating provinces.

Unfortunately, in reality, the HST often complicates the life of businesses. While the goal was to establish a national sales tax, the Canadian government made HST adoption optional—and several provinces chose not participate, instead maintaining their distinct systems and rates.

As a consequence, companies operating across provincial boundaries or across the country—whether in physical locations or via e-commerce—must deal with tax rate differences depending on whether the consumer is located in a HST province or a GST/PST jurisdiction. (While the GST is 5% across the country, the PST may vary from 6% to 9.975%.)

Canadian Provinces and the HST

The harmonized sales tax is used in five of Canada’s thirteen provinces:

  • Newfoundland/Labrador (joined 1997) (joined 1997)
  • New Brunswick (joined 1997)
  • Nova Scotia (joined 1997)
  • Ontario (joined 2010)
  • The Island of Prince Edward (joined 2010)

British Columbia, Saskatchewan, Québec, and Manitoba are the only surviving Canadian provinces that use the provincial system in addition to the federal sales tax. Several others, like Alberta, the Northwest Territories, Nunavut, and Yukon, levy solely the federal goods and services sales tax and no municipal sales taxes.

British Columbia (BC) implemented the HST in 2010, but abandoned it three years later. After an estimated 55% of the province’s population voted against the scheme, the administration reinstated it.

Registering and Collecting the HST

The HST is collected and remitted by Canadian company owners based in one of the five provinces. To begin applying the sales tax, the company operator must register for a GST/HST account with the CRA if the total income is $30,000 or more per year.

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When each province joined the HST program, it developed its own PST collecting % and synchronized it with the GST. As a result, the actual amount of HST may vary depending on which of the five provinces a firm works in. Originally, the rate fluctuated between 13% and 15%, but almost every province now enforces 15%.

Small suppliers, or company owners with less than $30,000 in yearly income, are not obliged to charge or remit the HST. However. They may still voluntarily register to collect the tax since doing so enables them to claim input tax credits on products and services purchased in the course of conducting their business.

Exempted Goods and Services

While many items and services are subject to HST, some are tax-free or zero-rated. A zero-rated item or service is one that is subject to no HST. These contain items such as basic foods, literature, and a variety of agricultural and fishing products.

Foreign buyers of Canadian items are exempt from paying HST if the goods or services will be consumed entirely outside of Canada. Non-residents visiting Canada, such as tourists, must, nonetheless, pay HST. They may be eligible for a HST rebate in certain situations.

The HST’s Effect on Taxpayers

The HST’s effect on consumers and taxpayers is currently being debated.

According to critics, the HST transfers the tax burden from companies to consumers. HST supporters say that it really decreases taxes. They claim that the HST system decreases the cost of conducting business, lowering the costs of consumer products and services.

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