The objective of this article is to provide a summary of the registration requirements for sales tax purposes that may be applicable to an e-commerce supplier who is a non-resident of Canada (a “Merchant”) that is selling goods and services in Canada.
This article is not intended to be comprehensive (i.e., to cover every aspect of the sales tax legislation and registration requirements). It is intended to provide an overview of some of the more significant sales tax registration requirements applicable in Canada. We have also included a reference map with the current tax rates for the provinces and territories of Canada for your convenience.
Federal sales tax regime
Canada is a federation that is made up of 10 provinces and three territories. A federal value-added-tax (“VAT”) of five per cent called the Goods and Services Tax (“GST”) applies across the country on the sale of most properties and services as well as on the importation of most goods in Canada. In addition, five provinces have opted to participate in the federal VAT regime instead of imposing and administering their own provincial sales tax. In those participating provinces, the provincial sales tax is harmonized with the GST and is generally shown on invoices as one tax called the Harmonized Sales Tax (“HST”).
For example: Ontario is an HST-participating province and any taxable sales made in that province will generally be subject to HST at the rate of 13 per cent which includes the five per cent GST as well as an additional eight per cent provincial tax component. The four other HST-participating provinces (New Brunswick, Newfoundland-Labrador, Nova Scotia and Prince Edward Island) each imposes a 15 per cent HST (i.e., five per cent GST with an additional 10 per cent provincial tax component).
The federal VAT is commonly referred to as GST/HST and requires only one registration and one return filed for each reporting period. When a non-resident of Canada registers under the federal VAT regime, the non-resident automatically becomes responsible to charge and collect any applicable HST (for sales made in HST-participating provinces) and any applicable GST (for sales made elsewhere in Canada) and to report those amounts consolidated as one lump-sum total on its GST/HST return. There is no need to break-down the tax by province on the GST/HST return.
The non-resident Merchant may also be able to claim a credit (input tax credit) on its GST/HST return to reduce the amount of tax to remit with the GST/HST return. The credit is generally equivalent to the amount of GST/HST paid on purchases and importation made by the Merchant, subject to some restrictions. In the end, the non-resident will have to remit a net amount, or may also be entitled to receive a net refund (if the credits claimed for the period exceeds the amount of GST/HST collectible for the period).