At a Glance
There are three types of sales taxes in Canada: Goods and Services Tax (GST), Provincial Sales Tax (PST), and Retail Sales Tax (RST). Some provinces have a combined sales tax called the Harmonized Sales Tax (HST).
To register for the sales taxes, your sales in a single quarter (3 months) within the previous 12 months must be more than $30,000.
Some places, such as British Columbia, have combined their PST (in Manitoba, this tax is known as the RST) and GST to come up with the HST. Since 2013, BC's 12% HST has been replaced by a 5% GST and 7% PST.
A Simplified BC Example
Elena is visiting Vancouver, BC for the first time and is confused about the pricing of her purchased products at the local stores. She can buy an item with a price tag of $10, but then end up paying $10.50 at the register. Sometimes she ends up parting with $11.20 for the same item. Elena wonders why she has to pay more or different prices for the same product.
Explanation: Canadian stores are required to collect various sales taxes for respective items. In BC, some items will attract PST and GST at the rates of 7% and 5% respectively.
In Elena's case, some items contain the Goods and Service Tax and not the Provincial Sales Tax - or in some instances a combination of both.
Price 1 (Paid $10.50 instead of $10):
Price was $10
Add GST at 5% (5% of $10 = $0.50)
Final Price becomes $10.50
Price 2 (Paid $11.20 instead of $10)
Price was $10
Add GST at 5% (5% of $10 = $0.50)
Add PST at 7% (7% of $10 = $0.70)
Final Price becomes $11.20
What does this mean for your business?
Unless you expect to record low sales (less than $30,000 per quarter), it is generally wise to register for sales taxes early on.
Sales taxes can be claimed against what you purchase for your business including stationary and office equipment. Besides, GST/RST/PST discipline you to document all your receipts since you'll use them to file your taxes.
Talk to your accountant to find out the pros and cons of registering your business for sales tax at a particular time. They should be able to assess and offer a professional opinion that will serve to benefit your business.
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