Canadian governments (Federal, Provincial, and Municipal) charge you taxes for different reasons. Some of the most well-known taxes are the following:
- Income Tax: the tax that you pay for your income/revenue/salary
- Sales Tax: the tax that you pay when you purchase something
- Property Tax: the tax that property owners need to pay
- Excise Tax: the tax that is embedded in the prices of some products such as Alcoholic Beverages, Tobacco products, and Gasoline
I explain Sales Tax in this article. When you purchase a good or service you need to pay an extra percentage on top of the original price to the merchant or service provider. The merchant in return needs to transfer the tax to the government.
Goods and Services Tax (GST)
GST was first introduced by the infamous prime minister of Canada Brian Mulroney [link]. This is a federal tax which is currently equivalent to 5% of the base price of some selected goods and services. For example if you purchase children apparel you need to pay this tax. If you purchase a child dress for the base price of $100, you need to pay $105 to the store. The amount of $5 is the GST. In Quebec “Revenu Québec” collects GST. “Canadian Revenue Agency” (CRA) is in charge of collecting GST for the rest of Canada.
Some goods and services are exempt from GST. In other words the seller does not charge you GST for such goods and services. These products are called zero-rated goods and services. Visit the CRA website for a list of such products and services.
Unfortunately the number of goods and services that are not exempt from GST is a lot more than those which are zero-rated.
Provincial Sales Tax (PST)
PST is also called Retail Sales Tax (RST). In Quebec this tax is called QST. The tax is collected at the provincial level. Each province could charge consumers differently. The following list shows the current rates. The rates could change in the future.
- Ontario 8%
- British Columbia 7%
- Alberta 0% (Alberta does not collect provincial sales tax)
- Manitoba 7%
- Quebec 7.5%
- Prince Edward Island (PEI) 10%
- Saskatchewan 5%
Provinces calculate PST on the original prices of the goods and/or services. The only exception is PEI which adds up GST first and then calculates PST. For example if a product is $100 and GST is 5% then PEI tax would be $10.5 which is 10% of $105 (price + GST).
Three Canadian provinces Newfoundland and Labrador, Nova Scotia, and New Brunswick do not collect PST. They instead collect HST or Harmonized Sales tax which currently sits at 13%. I explain HST in the next section of the article.
Ontario also intends to collect HST instead of GST+PST starting from July 1, 2010. There are so many debates going on about this issue.
Harmonized Sales Tax (HST)
The Harmonized Sales Tax replaces the combination of GST and PST. For example if you currently purchase an item in Ontario with the original price of $100 you have to pay $5 for GST and $8 for PST which is confusing. To make the matters worse there are some goods and/or services that only GST apply to them or they are exempt from both GST and PST. To reduce the level of complexity Federal government encourages provinces to use HST which is a single tax that replaces both GST and PST. The current rate for HST is 13%. As I mentioned earlier three of Canadian provinces use this method of sales taxation. Ontario will join them in the near future (July 1, 2010 to be exact).
If your annual income is below a certain level then you are eligible for GST/HST Credit. CRA (Canada Revenue Agency) under this program sends out cheques of certain amounts to those individuals or families who are eligible for this program. The intention is to compensate them for the GST/HST they have paid. Click here for more information about this program. If you are a newcomer to Canada it is very likely that you are eligible for GST/HST credit so do not miss this opportunity. Visit the website and see whether and how to apply.