What sales taxes apply to digital services in Canada?

The following sales taxes apply to digital services sold in Canada: GST, HST, PST, and QST.

GST stands for goods and services tax, while HST represents the harmonized sales tax. PST stands for provincial sales tax: In Canadian provinces where you have to charge the GST and the provincial sales tax (PST), calculate the GST on the price excluding the PST. In Québec, the goods and services tax (GST) and the Québec sales tax (QST) are collected on sales or supplies of most property and services. The harmonized sales tax (HST) replaces the QST and GST in certain provinces.

In Canada, GST is a tax that applies to the supply of most goods and services. These goods and services also include real property and intangible personal property.

Generally, the HST applies to the same base of property and services as the GST. HST is imposed in Canadian provinces that have harmonized their provincial sales tax with the GST; these provinces are referred to as the “participating provinces”.

The participating provinces are New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario, and Prince Edward Island.

In the remaining provinces and territories – Alberta, British Columbia, Manitoba, Quebec, and Saskatchewan – GST is imposed on taxable goods and services. In these provinces, there may also be a provincial sales tax, or a retail sales tax, in place.

For the rates of each province, see the Canadian Revenue Agency’s list of GST/HST rates.

Note: In Quebec, Revenu Québec administers the GST/HST, except for certain types of listed financial institutions. If your business is located in Quebec, please visit the Revenu Québec website.

Who charges Canadian sales tax?

Canadian sales tax registrants, or businesses required to have a GST/HST registration number, must charge and account for the GST on taxable supplies (other than zero-rated supplies) of goods and services made in Canada.

Where GST/HST registrants make taxable supplies (other than zero-rated supplies) in a participating province, they must charge and account for the HST instead of the GST.

GST/HST registrants must meet certain responsibilities. Generally, they must file returns on a regular basis, collect the tax on taxable supplies they make in Canada, and remit any resulting net tax owing.

GST/HST is applied on B2B and B2C sales.

What goods and services attract Canadian sales tax?

Most goods and services (including digital services) supplied in or imported into Canada are taxable supplies and are subject to the GST/HST.

Some supplies of goods and services are taxable at the rate of 0% (zero-rated). GST/HST is charged at a rate of 0% on these supplies.

For more information, see the Canadian Revenue Agency’s page on Zero-rated (0%) supplies - List of GST/HST zero-rated supplies.

In addition, a limited number of goods and services are exempt from GST/HST. For more information, see the Canadian Revenue Agency’s page on Exempt supplies - List of GST/HST exempt supplies.

What are the Canadian sales tax rates?

The Canadian GST/HST rates vary depending on where the goods and services are consumed. Here’s the most recent table – as of March 2016 – of GST/HST rates. The table below is also available on the Canada Revenue Agency website here.

The Canadian Revenue Agency also provides a helpful sales tax calculator.

Is there a sales threshold?

If sales are over 30,000 CAD based on your annual worldwide sales, then sales tax will apply.

How do I enable the Canadian region in Taxamo?

Assuming your product/services qualify as digital goods/services in Canada and you are above the threshold to pay Canadian sales tax, then complete the following steps:

  1. Log into the Taxamo portal and go to: My account > Tax regions.
  2. Enable in Test mode or Live mode for the relevant dates.
  3. Enter your Canadian business number (BN).

If you are using an integration other than the Taxamo API or the Taxamo checkout form, please confirm that your integration type has been upgraded to support Canada.

What information do you need to include on your receipts or invoices?

You must let your customers know when the GST/HST is being applied to their purchases.

You can use cash register receipts, invoices, contracts, or post signs at your place of business to inform your customers whether the GST/HST is included in the price, or added separately.

You have to show either:

  • That the total amount paid or payable for a supply includes the GST/HST
  • The amount paid or payable for the supply and show the amount of the GST/HST payable on the supply separately
  • The GST/HST rate that applies to the supply

If HST applies to the supply, show the total HST rate. Do not show the federal and provincial parts of the HST separately. PST and QST are recorded separately on invoices.

For more information on what you must include on invoices for GST/HST registrants, see the Canada Revenue Agency table “Information requirements for sales invoices”.

How are adjustments and credit notes treated ?

See details from the Canadian Revenue Agency as detailed here.

If you give customers a refund or credit for all or part of an amount they paid or were charged for goods they return, you may adjust, refund, or credit the customer the GST/HST you first charged or collected on these goods. If you do this, you have to issue a credit note to the customer, or have the customer issue a debit note to you.

Be sure the following information is included on the credit or debit note:

  • A statement or other indication that the document is a credit or debit note;
  • Your business or trading name, or the name of your intermediary, and your Business Number (BN), or the BN of the intermediary;
  • The customer’s name or trading name, or the name of the customer’s authorized agent or representative; and either
  • The amount of the adjustment, refund, or credit for tax; or
  • A statement that the total amount for which the note is issued includes the adjustment, refund, or credit of tax, the tax rate (GST or HST) that applies to each taxable supply for which tax is reduced, and either the total amount and tax reduced for all the supplies to which the same tax rate applies or the total amount and tax reduced for each supply.

You can deduct the amount of GST/HST adjusted, refunded, or credited in determining your net tax for the reporting period in which you issued the credit note or received the debit note, as long as that amount was previously included in your net tax.

In turn, if your customer claimed an input tax credit (ITC),he or she will add that amount in calculating his or her net tax. If your customer claimed a rebate, he or she will repay that amount.

You have four years from the end of the reporting period during which you reduced the purchase price to make the adjustment, refund, or credit.

If you refund only a certain percentage of the purchase price (for example, 85%) and keep the balance as a restocking charge, you will refund only that percentage of the GST/HST you first collected. You issue a credit note, or the customer issues a debit note, for the amount of GST/HST you refund.

If you and the customer are GST/HST registrants, you can choose not to refund or credit the customer the GST/HST that was previously paid. You may wish to forgo the GST/HST refund if you have already remitted the tax and the customer has already claimed an ITC. In this case, you simply refund the amount without including the GST/HST that the customer first paid. You and your customer do not have to make any adjustments on your GST/HST returns.

What information should be retained for the Canadian tax authorities?

You must keep the records that will support the information you provide on your sales tax returns. Your records must allow you to calculate:

  • the amount of sales tax (GST/HST) you collected
  • the amount of GST/HST paid and payable on your eligible business purchases and expenses
  • the amount of tax to be refunded, rebated, or deducted from your net tax

Your records must describe the goods and services being traded in sufficient detail to determine whether or not GST/HST applies.

Usually you must keep your records for a period of six years from the end of the last year to which they relate. However, the Canadian Revenue Agency may ask you to keep the invoices longer than six years.

How do I register for Canadian sales tax?

Online

Registering electronically through Business Registration Online (BRO) has many benefits:

  • One-stop service: This integrated online service lets you register for key Canadian Revenue Agency program accounts and some provincial accounts at the same time. This saves time and duplicated effort.
  • Convenient: Service is available from your home and office anywhere in Canada well outside normal business hours, and on Saturdays.
  • Easy-to-use: Questions guide you through the registration process. Helpful features such as pop-up messages are displayed when missing or incorrect information is entered.
  • Secure: State-of-the-art encryption and security procedures allow you to follow steps that further protect your private information.

To register online or to find out more about online registration, see here.

Telephone

You can register for a business number (BN) and Canadian Revenue Agency program accounts by calling 1-800-959-5525.

If you are applying for a BN, be ready to answer the relevant questions from Form RC1, Request for a Business Number.

If you already have a BN, to register for the GST/HST, be ready to answer the relevant questions from Form RC1A, Business Number - GST/HST Account Information.

Mail or fax

You can register for a business number (BN) by using Form RC1, Request for a Business Number and mailing or faxing it to your local tax centre.

If you already have a BN, to register for the GST/HST, use Form RC1A, Business Number - GST/HST Account Information.

How do I file a tax return to the Canadian tax authorities?

Even if you are not required to, you can file your GST/HST return online.

You can also file:

  • in person at a participating financial institution
  • by mail by sending your paper GST/HST return (GST34-2 or GST62) to the address on the return

What is the due date to file a Canadian sales tax return?

If your reporting period is monthly or quarterly, you have to file your GST/HST return and pay the amount you owe no later than one month after the end of your reporting period.

If you have an annual reporting period, there are two possible rules, depending on your situation:

  • if you are an individual and you have a December 31 fiscal year-end, you have to file your GST/HST return by June 15 and pay the amount you owe by April 30
  • in all other cases, you have to file your GST/HST return and pay the amount you owe no later than three months after the end of your fiscal year

You have to file a GST/HST return even if you have:

  • no business transactions
  • no net tax to remit

How are sales in foreign currencies treated ?

The rules regarding the treatment of sales in foreign currencies can be found on the Canadian Revenue Agency website.

The Bank of Canada exchange rates are applied to sales in other currencies. There are options in terms of the date of the exchange rate that is used. These include:

  • The day the consideration for the supply is paid.
  • The day the foreign currency was acquired.
  • The average rate of exchange for the month in which tax is payable.

Taxamo has integrated a solution to take in the rates feed from the Bank of Canada and apply the relevant monthly rate for tax settlement purposes.