Canadian sales tax, or goods and services tax, is applied to most goods and services that are bought and sold in Canada. While the specific name of the tax may vary between provinces, since some of the provinces refer to their version of the tax as provincial sales tax (PST) or harmonized sales tax (HST), the general principles of the tax remain the same. Goods and services can be divided into three categories: taxable, zero-rated, and exempt.

Taxable supplies

Taxable items include most goods and services in Canada, including new housing sales, the sale, rental, or lease of commercial real estate, automobile sales and leases, food items such as candy, restaurant food, or snack-type junk items, hotel accommodations, clothing, and footwear. Most services, such as plumbing, landscaping, advertising, taxi or ride-sharing services, legal and accounting services, and hairstyling, are also subject to the GST or HST. 

The rates for taxable items vary by province. For e-commerce sellers and online service-based businesses, it is crucial to know where your customers are. GST is levied based on the customer’s location, so you must know where your customers are located to charge them the correct rate. 

Ecommerce and service-based businesses may note that they are not required to collect Canadian sales tax when selling or providing services to customers outside Canada.

Zero-rated

Zero-rated goods are still subject to Canadian sales tax but at a rate of 0%. This may seem counterintuitive – why report sales tax if no tax was collected? 

Sellers and service providers who offer zero-rated goods and services do not have to collect any goods and services tax on these sales. However, they may be eligible for a tax credit on any purchases of property or supplies necessary to supply those zero-rated goods. This provides an incentive for providers of these goods and services to continue to provide them. 

Zero-rated goods and services are those considered essential to living. Basic grocery items, feminine hygiene items, prescription medications, and basic medical devices such as hearing aids are all zero-rated items. Zero-rated goods also benefit farmers and fishermen, since the Canadian government recognizes that they provide essential services to keep the country fed. Because of this, most livestock purchases and farm-raised fish, as well as raw goods such as grain are zero-rated. 

As mentioned above, products and services that normally would be subject to GST if sold in Canada become zero-rated items if exported.

Exempt

Exempt services are those not subject to GST or HST at all. They differ from zero-rated goods in that there are no tax credits attached to the provision of these goods. These are also usually goods and services considered essential. 

Exempt goods include long-term residential rent, residential home sales (excluding new construction), legal aid services, necessary medical or dental services, educational services such as tutoring, childcare services, music lessons, banking and accounting services, and municipal and nonprofit services.

Provincial services

Most of these above taxes will be applicable to provincial sales tax as well. Some provinces have a few extra exemptions that would make a few extra of the taxable goods zero-rated. However, the provinces that do have these exemptions must still remit the federal GST even if the service is not subject to the provincial tax. 

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