How Do Sales Taxes Work in Canada?

Canada has a multi-layered sales tax system. Depending on where your business operates and what you sell, you may be required to collect and remit federal tax, provincial tax, or both. This article explains how the system is structured and what it means for your business.

The Three Types of Sales Tax

GST — Goods and Services Tax

A federal tax of 5% charged on most goods and services sold in Canada. Applies in every province and territory. If you are registered, you collect it from your customers and remit it to the CRA.

HST — Harmonized Sales Tax

In provinces that have combined their provincial sales tax with the federal GST, the result is the HST. It is a single blended rate that replaces the separate GST + PST.

In HST provinces, you only register once (with the CRA) and remit one blended amount.

PST — Provincial Sales Tax

Provinces that have not harmonized have their own separate provincial sales tax, administered by the province (not the CRA). You collect and remit GST and PST separately.

Alberta, the territories (Yukon, NWT, Nunavut), and some others have no provincial sales tax — only the federal 5% GST applies.

When You Are Required to Register

GST/HST: Mandatory once your worldwide taxable revenues exceed $30,000 in any single calendar quarter, or in the last four consecutive quarters. You can register voluntarily before that threshold.

PST/QST: Registration thresholds and rules vary by province. Some provinces (e.g., BC, Saskatchewan) require you to register if you sell taxable goods or services to customers in that province, regardless of where your business is located — even for out-of-province sellers.

How the System Works in Practice

Collecting: When you sell a taxable good or service, you charge the applicable tax on top of your price and collect it from the customer.

Remitting: On a regular basis (monthly, quarterly, or annually depending on your revenue), you file a return with the CRA (and separately with the province, if applicable) and send them the tax you collected — minus any input tax credits (ITCs) you are entitled to claim.

Input Tax Credits (ITCs): When you buy things for your business that include GST/HST, you can claim that tax back. This prevents the tax from stacking up through the supply chain — ultimately only the end consumer pays it.

Net remittance = Tax collected from customers minus ITCs from your own purchases

Abnormal Procedures

You have been operating without registering and you have now exceeded the threshold.

Register immediately — you are legally required to collect and remit from the moment you crossed the threshold. Let your Mesa CPA advisor know. There may be back-taxes owed on sales since you hit the threshold, and penalties if registration is late.

You sell to customers in multiple provinces.

Your obligations depend on where your customers are located and what you are selling. This can get complex — especially for digital services, which have their own cross-provincial rules. Talk to your Mesa CPA advisor before assuming you only need to register once.

You are a non-resident selling to Canadian customers.

Non-resident sellers of digital services to Canadian consumers may have registration obligations even without a physical presence in Canada. This area has changed significantly in recent years. Get advice before assuming you are exempt.

FAQ

What goods and services are exempt from GST/HST?

Most basic necessities are zero-rated or exempt: groceries (basic food items), prescription drugs, most medical devices, residential rent, and most financial services. If you are unsure whether what you sell is taxable, your Mesa CPA advisor can confirm.

What is the difference between zero-rated and exempt?

Both result in no tax charged to the customer. The difference: zero-rated supplies still count as taxable — so you can claim ITCs on related purchases. Exempt supplies do not let you claim ITCs. The distinction matters for your input tax credit claims.

Do I have to charge sales tax on sales to other businesses?

Yes — GST/HST applies to B2B sales too. The buying business can claim the tax back as an ITC. It is only the final consumer that actually ends up paying.

How often do I file and remit?

It depends on your annual revenue:

• Under $1.5M: can file annually (but quarterly is allowed)
• $1.5M–$6M: quarterly
• Over $6M: monthly

Your Mesa CPA team will set up the correct filing frequency when they register you.