VAT and Sales Tax in Canada

Canada's sales tax system layers a uniform federal rate on top of provincial rates that vary significantly by jurisdiction. Understanding which rate applies, when registration is required, and how to recover tax paid on business inputs is essential for any business operating in Canada.

How does the federal GST work in Canada?

The Goods and Services Tax (GST) is a federal value-added tax levied at 5 percent on most supplies of goods and services made in Canada. It is administered by the Canada Revenue Agency (CRA) under the Excise Tax Act. Unlike the sales taxes in most US states, GST is a multi-stage tax: each business in the supply chain charges GST on its sales and recovers GST paid on its purchases through the Input Tax Credit (ITC) mechanism. Only the final consumer bears the full economic cost. In five provinces, the federal GST has been merged with the provincial levy into a single Harmonized Sales Tax (HST) collected under a single return. CRA administers HST centrally and remits the provincial share to the relevant province. Canada country overview

What are the GST, HST, and provincial sales tax rates by province?

The combined rate a customer pays depends entirely on the province where the supply is made or received. The table below shows the 2025 rates after Nova Scotia reduced its HST from 15% to 14% effective April 1, 2025 -- the first rate change in that province in 14 years (CRA, Notice 342).

In HST provinces (Ontario, the four Atlantic provinces) a single return filed with CRA covers both federal and provincial components. In British Columbia, Saskatchewan, and Manitoba, GST and PST are separate regimes with separate registration and separate returns. Quebec's QST, administered by Revenu Quebec, is also a separate registration and return, though it mirrors the GST structure closely.

When must a business register for GST/HST?

Registration with CRA becomes mandatory when a business's total worldwide taxable supplies exceed CAD 30,000 in a single calendar quarter, or cumulatively over four consecutive calendar quarters (Canada Revenue Agency, Small Suppliers publication 2-2). Taxable supplies include standard-rated and zero-rated sales but exclude exempt supplies and sales of capital property. The moment the CAD 30,000 threshold is crossed in a single quarter, registration is required immediately -- the business must begin charging GST/HST on the sale that pushes it over the line and register within 29 days. Once over the threshold on a cumulative four-quarter basis, registration is required effective the first day of the month following that four-quarter period. Public service bodies, including charities and non-profit organizations, have a higher threshold of CAD 50,000. Businesses below the threshold may register voluntarily -- useful when most customers are themselves GST/HST registrants who can recover the tax via ITC, making registration cost-neutral for the supply chain. Certain categories must register regardless of revenue level, including taxi operators and commercial ride-share drivers.

What is the difference between zero-rated and exempt supplies?

This distinction is critical because it determines whether a supplier can recover GST/HST paid on its own purchases (Input Tax Credits). Both zero-rated and exempt supplies result in the customer paying no GST/HST, but the treatment for the supplier differs fundamentally (CRA, Type of Supply guidance).

Zero-rated supplies are taxable supplies charged at 0 percent. The supplier collects no output tax but retains full ITC recovery on inputs used to make those supplies. Examples include basic groceries (unprocessed food for human consumption), prescription drugs and qualifying medical devices, most goods and services exported from Canada, international freight and passenger transportation, and certain agricultural and fishing products. A grocery retailer selling zero-rated food can therefore recover the GST paid on store rent, equipment, and utilities.

Exempt supplies fall entirely outside the GST/HST framework. The supplier charges no output tax and cannot recover ITC on inputs used to make exempt supplies. Exempt categories include most long-term residential rent (leases over one month), the sale of used residential real property, most healthcare services provided by regulated professionals (physicians, dentists, physiotherapists), most educational services, child-care services, and most financial services (lending, insurance, certain securities transactions).

For businesses making both taxable and exempt supplies, a partial ITC restriction applies. Only the portion of input tax attributable to taxable commercial activities is recoverable -- exempt-portion inputs are a permanent cost. A residential landlord who also operates a commercial property must apportion input tax between the two uses using CRA-prescribed methods.

How does the GST/HST return work and what are Input Tax Credits?

GST/HST-registered businesses file periodic returns on Form GST34 (or electronically via CRA My Business Account / NETFILE). The return captures total taxable supplies, GST/HST collected on sales (output tax), and GST/HST paid on business purchases (input tax credits). The net tax remitted equals output tax minus ITCs. When ITCs exceed output tax -- common for exporters and capital-intensive businesses -- CRA issues a refund.

Filing frequency is based on annual taxable revenues. Businesses with revenues above CAD 6 million must file monthly; those in the CAD 1.5 million to CAD 6 million range file quarterly; smaller businesses below CAD 1.5 million may elect to file annually with quarterly instalment payments based on the prior year's net tax. Monthly and quarterly returns are due one month after the reporting period ends; annual returns are due three months after the fiscal year-end (Canada Revenue Agency, Reporting Requirements and Deadlines).

ITC documentation requirements scale with the value of the purchase. For purchases under CAD 30, a receipt is sufficient. For purchases between CAD 30 and CAD 149.99, the supplier's name, the date, the total amount, and the GST/HST amount are required. For purchases of CAD 150 or more, the supplier's GST/HST registration number must also appear on the supporting document. These thresholds are strict -- CRA disallows ITCs that lack the required documentation even when the tax was genuinely paid.

For eligible businesses with annual taxable supplies under CAD 400,000, the Quick Method (Excise Tax Act s.227) offers a simplified alternative: remit a flat percentage of gross revenue (including GST/HST collected) rather than tracking ITCs individually. Quick Method remittance rates vary by province and supply type. This method benefits service-heavy businesses with relatively low input tax -- for a consultant or designer, the fixed rate often results in lower net remittances than the standard ITC-offset method. A qualified tax professional can model both approaches against actual figures.

For the broader Canadian tax context, see Canada country overview. To find a Canadian CPA or tax professional with GST/HST compliance experience, browse the TaxPros Rated Canada directory. GST/HST rules interact significantly with corporate income tax and payroll obligations -- a qualified tax professional can assess your complete compliance picture.