GST, HST, and PST in Canada: Understanding the Differences
When doing business in Canada, understanding the country’s indirect tax structure/ VAT is crucial. Canada has a multi-level sales tax system at Provincial and Federal level, and three types that frequently come up are GST (Goods and Services Tax), Provincial Sales Tax (PST) and HST (Harmonized Sales Tax).
What is GST?
The GST is a federal tax of 5% that applies to most goods and services sold in Canada. It is administered by the Canada Revenue Agency (CRA) and applies in mostly all provinces and territories. In some provinces, GST is charged alongside a separate provincial tax (PST), while in others, it is combined into HST.
What is HST?
The Harmonized Sales Tax (HST) is a combination of the federal GST and a provincial sales tax (PST). Instead of collecting two separate taxes, certain provinces have opted to “harmonize” them into a single tax—administered federally by the CRA. The current HST rates are:
• Ontario – 13%
• New Brunswick, Nova Scotia, PEI, Newfoundland & Labrador – 15%
What is PST?
The PST is a provincial tax collected separately by certain provinces. It is not administered by the CRA and must be handled directly with the respective provincial tax authority. PST rates vary by province and apply to a range of goods and certain services.
Provinces that charge PST separately include:
• British Columbia – 7% PST
• Saskatchewan – 6% PST
• Manitoba – 7% RST (Retail Sales Tax)
• Québec – 9.975% QST (administered by Revenu Québec)
For GST/HST rate calculator, please refer to CRA website link.
Key Point: GST/HST Are Recipient-Based Taxes
Canada uses a destination-based approach for GST/HST. This means the tax rate depends on the province where the supply is delivered or where the recipient is located—not where the supplier is based.
So before charging tax, you must:
1. Determine the customer’s location
2. Apply the correct GST, HST, or PST rate based on that province
GST/HST/PST – Exemptions and When to Register
1. Export Sales – Fully Exempt
All export sales made outside Canada are fully exempt from GST, HST, and PST. This means that no such tax is collected on goods or services supplied to customers outside Canada.
2. Local Sales – Threshold-Based Exemption
For businesses operating within Canada, local sales up to CAD 30,000 are exempt from GST/HST registration requirements. However, once your local sales i.e sales within Canada (before expenses) exceed CAD 30,000 , registration for GST/HST is required.
3. Filing Obligations Post-Registration
After GST/HST registration, the CRA will assign your filing frequency—monthly, quarterly, or annually—based on your revenue and other criteria. Most small and medium businesses are assigned annual filing obligations.
For more detailed information, you can refer to this link on CRA’s official page.
Why It Matters for Businesses
Businesses need to charge, collect, and remit the correct tax based on their province of operation or where their customers are located. For example, a business in Ontario must collect 13% HST, whereas a business in British Columbia (BC) collects 5% GST/HST and 7% PST.
Also, businesses registered for GST/HST can claim input tax credits (ITCs) to recover GST/HST paid on their business purchases and expenses.
Conclusion
Understanding the difference between GST and HST helps businesses remain compliant and avoid penalties. Since GST and HST are recipient-based taxes, businesses must apply the correct rate depending on the province of supply, not their own location. Additionally, knowing when your sales cross the CAD 30,000 small supplier threshold is key to avoiding penalties and fulfilling registration obligations on time.
At KLA, we specialize in Canadian indirect tax compliance. Our services include:
• End-to-end GST/HST/PST registration assistance
• Determination of provincial applicability and recipient-based rate analysis
• Advisory on Input Tax Credit (ITC) claims
• Preparation and filing of GST/HST/PST returns
To read more about Canada and gain in depth knowledge, you may refer to below links:
Taxation of companies in Canada
Taxation In Canada for Non Residents
For more information, feel free to write at mail@klaggarwal.com