(Newswire.net — April 3, 2023) — When operating a business in Canada and selling to out-of-province clients, you may wonder which sales tax to charge. Depending on the province where the sale occurs, PST rates span from 5% in Alberta to 10% in Saskatchewan and Manitoba.
Factors such as the sale’s location and the taxable or zero-rated status of the goods or services being sold influence the sales tax you’re required to collect.
This guide answers what sales tax do I charge for out of province sales and details how to determine the correct sales tax for purchases made outside a given province.
Calculating the Sales Tax to Charge for Sales Made Outside of a Province
To determine the sales tax for out-of-province sales, evaluate aspects such as the sale’s location, the nature of the supply, and its taxability or zero-rating status. The steps you can take to choose the right sales tax to charge are listed below:
Step 1: Determine the Place of Supply
The location where the supply is made, known as the site of supply, depends on the province or region involved. For goods sales, it’s generally where the items are delivered or made accessible to the customer. For services sales, it’s typically where the services are performed.
Step 2: Determine the Type of Supply
The classification of a supply as taxable or zero-rated depends on its type. Zero-rated supplies have a 0% tax rate, while taxable supplies are subject to GST, HST, or PST.
Taxable supplies comprise the majority of goods and services sold in Canada, while zero-rated supplies encompass exports, essential consumer goods, and prescription medications.
Step 3: Determine the Applicable Sales Tax Rate
The applicable sales tax rate can be estimated once the supply location and type have been established. You must charge the appropriate sales tax rate for that province or territory if the supply is taxable. If the supply is zero-rated, no sales tax is required to be collected.
For instance, you must charge 5% GST and 7% PST for a total sales tax rate of 12% when you sell items to a customer in British Columbia. But, you are not required to collect sales tax from clients in any province when selling zero-rated goods like prescription medications.
Exception for Small Suppliers
With the exception of small suppliers, you might need to register and collect GST if you make taxable sales in Canada. A seller would qualify as a small supplier if their taxable sales revenue in one calendar quarter and the previous four quarters totaled $30,000 CDN or less.
You are not required to register for GST or charge Tax on your sales if you meet the criteria for small suppliers. To claim input tax credits, you can still opt to register freely.
Final Thoughts
In Canada, collecting sales tax on purchases made outside of a province can be a challenging procedure, but doing it correctly is crucial to avoiding penalties and fines. Considerations for calculating the amount of sales tax to charge include the province in which the sale is made, the kind of supply being made, and whether the supply is taxable or zero-rated.
Also, with the exception of small suppliers, you might need to register and collect GST if you make taxable sales in Canada. You can make sure you’re collecting the correct sales tax and abiding by Canadian tax regulations by adhering to these rules.