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Indirect tax
Most sales tax questions come down to a single distinction: charging no tax and charging tax at zero are different, and only one of them lets you recover the tax you paid on your own costs.
The short version
This is the whole subject in one table, and getting a supply in the wrong column is the most expensive ordinary error in indirect tax.
| Tax you charge | Tax you recover on costs | |
|---|---|---|
| Taxable | 13% in Ontario | Yes, in full |
| Zero-rated | 0% | Yes, in full |
| Exempt | None | No |
Zero-rated and exempt look identical to your customer. Neither pays tax. They are completely different to you.
A zero-rated business charges nothing and still claims back every dollar of HST it paid on fuel, equipment, supplies and professional fees. It is usually in a refund position permanently. An exempt business charges nothing and absorbs all of that tax as a real cost, because it cannot claim input tax credits at all.
Two businesses can therefore look the same on an invoice and differ by tens of thousands of dollars a year.
The residential landlord is the clearest illustration. Rent is exempt, so no HST is charged, and the HST on repairs, materials, appliances and property management is simply a cost. A commercial landlord charging HST on rent recovers all of it.
Registration is generally required once your taxable and zero-rated supplies exceed $30,000 over four consecutive calendar quarters. Below that you are a small supplier and registration is optional.
Optional is not the same as unwise. Registering voluntarily is often worth it where your customers are businesses, because they recover whatever you charge them and are indifferent to it, while you begin recovering the tax on your own costs. Where your customers are individuals, adding 13% to your price is a real competitive question and the answer is less obvious.
Two things that catch people. The threshold is measured on a rolling basis rather than by calendar year. And a business that has been quietly over the threshold for some time has been collecting nothing while owing tax on those sales, which is a considerably worse position than registering early would have been.
Smaller businesses can elect a simplified calculation: charge tax normally, then remit a set percentage of your tax-included sales instead of tracking input tax credits in detail. The difference between what you collected and what you remit is yours to keep, and it is meant to approximate the credits you gave up.
In Ontario the rate is roughly 8.8% for service businesses and 4.4% for businesses reselling goods, with a further 1% credit on the first portion of eligible sales each year. Rates differ by province and by what you do, so the figure that applies to you needs confirming rather than assuming.
Four things decide whether it is worth electing:
It is an election rather than a default, so it has to be filed, and there are timing rules about when it takes effect and when it can be revoked. See also the shorter note in tax tips.
The rate is set by where the supply is made, which generally means where the customer is, not where you are. An Ontario business shipping to Alberta charges the Alberta rate.
| Ontario | HST, 13% |
|---|---|
| New Brunswick, Newfoundland and Labrador, Prince Edward Island | HST, 15% |
| Nova Scotia | HST, reduced from 15% in 2025, so check the current rate |
| British Columbia, Saskatchewan, Manitoba | GST 5%, plus a separate provincial sales tax you may have to register for independently |
| Quebec | GST 5%, plus QST at 9.975%, both administered by Revenu Québec |
| Alberta and the territories | GST 5% only |
Place of supply rules for services and digital products are more involved than for goods and turn on the address you have on file for the customer.
The provinces with a separate sales tax are the ones that cause trouble, and not only because they are administered separately. They work on a different principle.
GST and HST are value-added taxes. Tax flows through the chain and each registered business recovers what it paid, so the tax lands on the final consumer and businesses in the middle are neutral.
PST and RST are single-stage taxes on the end user. There is no equivalent of an input tax credit. If your business pays PST on something it buys in British Columbia, that money is gone. It is a cost, not a timing difference.
Applying HST habits to a PST province is therefore expensive twice over: you may fail to charge tax you were obliged to collect, and separately absorb tax on your own purchases while assuming it will come back.
Three further differences worth knowing. These taxes often apply to different things than GST does, with software and certain services caught in some provinces. They have their own registration rules, which can require an out-of-province seller to register based on sales into the province. And an HST registration does nothing for you there.
QST deserves separating from the PST provinces, because it is not the same kind of tax and because opening in Quebec changes considerably more than your sales tax.
QST is a value-added tax, like GST and HST rather than like BC's PST. You recover the tax on your inputs, so a Quebec operation is not absorbing it as a cost. The recovery is called an input tax refund rather than an input tax credit, which is a naming difference that trips people up in software and in conversation.
The rate is 9.975%, applied to the price before GST rather than on top of it, so the combined burden is a little under 15% rather than the 15.4% you would get by stacking one on the other.
The operational surprise. Quebec is administered by Revenu Québec, not the CRA. For most businesses with a Quebec presence, Revenu Québec administers both the QST and the GST, so your GST returns move from one agency to the other.
Different portal, different account, different auditors, different correspondence. Nothing about the tax has changed. Everything about how you deal with it has.
Clients tend to ask about the sales tax and are surprised by the rest of it. A permanent establishment in Quebec brings:
Ontario folded its retail sales tax into HST in 2010, and most people reasonably concluded that was the end of it. Two pieces survived, and both still come up.
Adding to the confusion, Manitoba calls its provincial sales tax Retail Sales Tax as well, so the same abbreviation means a live general sales tax in one province and two narrow survivors in another.
This is a different regime rather than a variation on the same one, and applying ordinary business rules to a charity produces wrong answers.
The practical consequence is that an organization can be entitled to substantial rebates it has never claimed. Rebate claims can generally be made for past periods within a limitation window, so it is worth establishing the position rather than assuming the previous treasurer had it right. See T3010 and audits and review engagements.
Input tax credits do not have to be claimed on the return for the period in which the expense fell. For most registrants there is a four year window, running from the due date of the return in which the credit could first have been claimed.
That matters more than it sounds, because it means missed credits are usually recoverable rather than lost. A business that finds a year of unclaimed tax on a supplier account, or discovers that import tax at the border was never claimed, can generally still get it. Cleaning up historical records is worth doing partly for this reason.
The window is shortened to two years for larger registrants and for listed financial institutions, so this is not universal.
What you must hold to support a credit depends on the size of the purchase. Small amounts need little. Above a threshold you need the supplier's registration number, and above a higher one you need more again, including the purchaser's name and a description of what was supplied.
The practical version: a credit card statement is not support for a claim. It shows a payment, not a supply, and it carries no registration number. This is the most common reason credits are denied on review, and it is entirely avoidable.
If you remitted tax on a sale and were never paid, you can generally recover the tax portion when the debt is written off. Businesses that carry receivables and eventually write some off routinely forget this, and it is real money.
Annual, quarterly or monthly filing is set by the size of your taxable supplies, and the assignment changes as thresholds are crossed. Annual filers above a certain amount also pay instalments through the year. A business that has grown may be filing on a schedule that no longer matches its obligations, and a business that has shrunk may be filing more often than it needs to.
Both are commonly missed, and both are easier to get right before closing than to fix after.
Worth remembering who is on the hook. Unremitted HST is one of the two amounts a director can be held personally liable for. A company under cash flow pressure that starts using the tax it has collected is creating exposure that outlives the company. See director liability.
Rules introduced in 2021 brought non-resident vendors and online platforms into the system. Non-resident businesses selling digital products or services to Canadian consumers, platform operators facilitating those sales, and short-term accommodation platforms all now have registration and collection obligations under either a simplified or a full regime.
For a Canadian business the practical effects are that tax now appears on foreign software and advertising invoices where it previously did not, and that a registered business should give its registration number to those suppliers, since the simplified regime generally does not apply to sales made to registrants. Getting charged tax you cannot recover under a simplified registration is an avoidable cost.
Goods imported into Canada attract tax at the border, collected by customs rather than charged by a supplier.
For a commercial importation, it is the 5% GST that is collected at the border, not the full 13%, even where the importer is in Ontario. The provincial portion of HST is not collected there. Depending on what the goods are used for, it may need to be accounted for separately afterwards, which is a question worth asking rather than assuming either way.
A registrant importing for use in commercial activity can generally claim the tax back as an input tax credit, so it is usually a timing cost rather than a permanent one.
The order of the calculation is the part worth understanding. Tax is charged on the duty-paid value: the customs value of the goods plus any customs duty and excise tax. Duty goes into the base before tax is applied.
So a tariff does two things rather than one. It raises the cost of the goods, and it raises the amount on which tax is calculated. Both land at the border, before the goods have been sold.
For a business importing regularly the consequence is cash rather than profit. More money leaves at the border, it leaves earlier than the sale that will fund it, and the credit arrives on a later return. In a period of shifting trade measures that gap is worth modelling rather than discovering, particularly where margins were set before the duty changed.
A practical point that costs businesses money on review. Where a customs broker handles the entry and pays the tax on your behalf, the broker's invoice is not what supports your claim. The customs accounting document is. Brokers' invoices often bundle duty, tax and their own fee, and a claim built from that figure will be wrong in at least one direction.
The single most common finding is the third and fourth items together: credits claimed on a spreadsheet that has drifted from the ledger, with a difference nobody has reconciled. That difference is the first thing an auditor asks about.
To your customer, nothing: neither pays tax. To you, everything. A zero-rated supply is taxable at 0%, so you charge nothing and still recover all the HST you paid on your costs through input tax credits. An exempt supply is outside the system, so you charge nothing and cannot recover any of the tax on your costs, which becomes a real expense.
Generally once your taxable and zero-rated supplies exceed $30,000 over four consecutive calendar quarters. Below that, registration is optional. Voluntary registration is often worthwhile when your customers are businesses, since they recover what you charge them while you begin recovering the tax on your own costs.
Generally the rate where the supply is made, which for goods usually means where they are delivered. An Ontario business shipping to Alberta charges 5%. The complication is British Columbia, Saskatchewan, Manitoba and Quebec, which administer their own sales taxes separately, so an HST registration does not cover a registration obligation there.
Usually yes. Most registrants have four years to claim an input tax credit, measured from the due date of the return in which it could first have been claimed, so missed credits are generally recoverable rather than lost. The window is two years for larger registrants and listed financial institutions. You still need proper documentation, which is where most late claims fail.
Possibly not. Public service body rebates can generally be claimed for past periods within a limitation window, and the entitlement depends on the type of body and on whether the organization qualifies. It is worth establishing the position properly rather than assuming past practice was correct, since unclaimed rebates over several years can be substantial.
Yes, indirectly. Tax at the border is calculated on the duty-paid value, meaning the customs value plus any duty and excise tax, so duty is inside the base before tax is applied. A tariff therefore increases both the cost of the goods and the tax charged on them. On a commercial importation it is the 5% GST that is collected at the border rather than the full HST. A registered importer can generally recover it as an input tax credit, but on a later return, so the immediate effect is on cash rather than on profit.
This page describes general principles as at August 2026 and is not advice for your situation. Rates change, provincial rules differ and are administered separately, and the classification of a particular supply can turn on details this page cannot cover. The CRA's GST/HST for businesses pages are the starting point.
It is worth establishing once rather than filing on an assumption. Twenty minutes, no charge.
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