4 Essential Tips on Understanding Business Sales Tax Obligations

No matter where you run a business in Canada, if you sell a product you have the obligation to collect sales tax. Ignoring that crucial step in doing business can lead to serious legal complications with your sales tax returns filing. This could potentially cost you heavily or even sink your business. Whether you’re operating in the bustling business hubs of Toronto or elsewhere in Ontario, understanding local sales tax obligations is critical.

Take a look at these 4 tips I have put together to better understand your obligations — and ensure you’re following them.

1. Why Sales Tax Collection Is Vital, Yet Vexing

The federal government and most Canadian provinces collect a sales tax to provide important sources of revenue. Sales taxes require the business to affix a certain percentage of the total sale as tax, collect it, then turn it over to the government’s tax department.

The obligation lies on the business to understand what you need to do when conducting business in other provinces or territories.

2. PST, HST, QST, and GST

Sales tax collection differs from province to province. Alberta, for example, collects no sales tax. Others combine federal and provincial taxes into one convenient bill.

Sales tax collection comes in one of three categories:

  • Provincial Sales Tax (PST) is administered by provinces
  • Goods and Services Tax (GST) comes from the federal government and applies everywhere
  • Harmonised Sales Tax (HST) combines provincial and federal and is administered by the federal government under the same laws authorising the GST
  • Quebec has its own unique sales tax regime called QST The territories do not charge their own sales tax, but the GST applies.
The territories do not charge their own sales tax, but the GST applies.

3. The Only Constant is Change

Although the GST remains uniform throughout the country, sales tax collection can differ from province to province. Some taxes charge different percentages.

Some commodities qualify for different rates from one province to the next. In some cases, restaurants may be exempt from charging sales tax. In other areas, grocery stores may have to charge a higher sales tax on single serving premade food than traditional items.

With every legislative session the possibility exists that sales tax collection laws and regulations could change. Some could eye higher taxes, especially for high-end purchases. Others may change their collection procedures or expand the scope of which businesses need to pay. As a Toronto business owner, staying updated with changes in the HST rate or regulations through local news sources or direct updates from the Canada Revenue Agency (CRA) website is crucial.

The matter grows more complicated when legislatures pass measures that require clarification by the court system. In many cases, legal conflicts or poor bill writing make it difficult for you to understand your business’s obligation.

The lesson I’ve gathered from this? Every province’s sales tax laws and regulations could change at any time and for any reason. Again, the responsibility falls on the business to stay aware of its obligations even if the laws change.

4. What E-Commerce Businesses Should Know

All e-commerce sales, except for certain exempted services, remain subject to sales tax in Canada. Many small and medium sized operations have outsourced distribution to platforms such as Amazon so that sales tax collection can occur automatically.

In 2019, Quebec’s own version of the sales tax will come into full effect. It will apply even to streaming services such as Netflix.

Canadian companies that sell to the United States may soon need to collect taxes from sales made there as well. The US system is much more Byzantine than the Canadian, with wide variances of percentages, applications, and regulatory requirements.

The Tip of the Iceberg

This information should just open the door in your thinking about sales tax returns filing and related requirements. Some business owners may have the time and ability to track and act upon these changes in house. Others should consult with a professional.

Staying in compliance with varying tax codes can be overwhelming. But remember help is out there when you need it. Get in touch with me.

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