Goods And Services Tax In Canada

October 13, 2010Canada Taxby EconomyWatch


Goods and services tax in Canada or GST is a value added tax, which was introduced in the country on 1st January, 1991. Prior to the introduction of the goods and services tax in Canada, the country had Manufacturer's Sales Tax or MST. The tax rate pertaining to the MST was 13.5 percent. It was reckoned that due to the Manufacturer's Sales Tax, the export activities of the manufacturing segment was affected badly due to their inability to export manufactured goods. The goods and services tax in Canada had created much hue and cry upon its implementation. It is assumed that on 1st January, 2008, the Canadian government is likely to decrease the tax rate on goods and services tax in Canada to 5 percent.

Harmonized Sales Tax:
In some provinces like Nova Scotia, New Brunswick, Labrador and Newfoundland the harmonized sales tax or HST is prevalent. The HST is made up of the goods and services tax and the provincial sales tax (retail) in some cases. In that case, goods and services tax of 6 percent is added to the 8% of provincial sales tax. The Canada Revenue Agency is instrumental in the collection of these taxes.
Canada revenue Agency and reporting period:
What a Canadian is required to do is get registered with the CRA or the Canadian Revenue Agency, which carries out the formalities of tax payment and files a tax return after every three months. Mode of payment may however vary. On registering with the Canada Revenue Agency, the individual is allotted a reporting period depending on yearly sale of the services and the goods, which come within the purview of this tax. On the basis of the sale, one may alter the reporting period as desired. The Canada Revenue Agency also takes into account the performance of the business establishment in the preceding years.
Criteria for registering with the Canada Revenue Agency or the CRA:
Condition 1- When yearly sales exceeds $30,000:In the event when a business organization or an individual is involved in commercial activities and if the yearly sale and the revenues earned from goods as well as services exceeds $30,000, registering with the Canada Revenue Agency is mandatory.

Condition II- When yearly sale is below $30,000:It is facultative and the “small supplier” may register with the Canada Revenue Agency or the CRA. On registering, the individual or the business organization collects goods and service tax from the consumer and is also entitled to make claims pertaining to input tax credits. However, the business organization is prohibited from doing so, unless and until, a Business Number has been assigned to them by the Canada Revenue Agency.
Taxable goods as well as services:
Majority of the goods as well as services fall under this category. The services and goods given below attract goods and services tax in Canada or attract the harmonized sales tax in Canada depending on the provinces. In the event when an individual intends to buy or sell jewelry, oil, gasoline or avail an accommodation in a hotel, lease a vehicle, buy a car, all such transactions would attract goods and services tax in Canada. This category includes levying the GST or the HST by businesses, wherein an individual may opt for Input Tax credit or ITC while filing returns of goods and services tax in Canada.
Exemptions of goods and services tax in Canada:
One is not required to pay this value added tax under the following circumstances. The rules pertaining to input tax credits vary in both the cases.
Goods and services exempt:
If the consumer is exempted from the GST or the goods and service tax in Canada, no Input Tax credit would be entertained then. This is applicable in the case of exempt goods as well as services.
Goods and services exempt include:
  • Education related services
  • Taking lessons in music
  • Services related to child care

These are just examples that have been furnished for the purpose of understanding. The exhaustive list of exempt GST is provided by the Canada Revenue Agency or the CRA.

Zero rated GST or Goods and service tax in Canada:
With regard to zero rated services and goods, although the consumer is not imposed the GST and is charged zero percent tax rate but the consumer is entitled to make claims pertaining to Input tax credits. Here lies the difference between the GST exempt and zero rated GST.
Zero rated goods and services tax include:
  • Activities related to exports
  • Buying ones grocery materials
  • Purchasing drugs, which are prescribed by a medical professional.

Goods and services tax in Canada comprise approximately 15 percent to 17 percent of the overall revenue earned by the Canadian government. This trend is being observed since the year 1999.

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