GST in CANADA

In Canada Goods and Services Tax (GST) is a multi-level value added tax introduced on January 1, 1991, by Prime Minister Brian Mulroney and Finance Minister Michael Wilson. The GST replaced a hidden 13.5% Manufacturers’ Sales Tax (MST); Mulroney claimed the GST was implemented because the MST hurt the manufacturing sector's ability to export and also replaced the Federal Telecommunications Tax of 11%.The introduction of the GST was very controversial. As of May 18th, 2010, the GST rate is 5%.

The European model has helped to become the Canada’s economy more efficient and competitive with lower-priced goods in the international market. However, the effects of the GST in this realm are quite modest, and are regularly swamped by large changes in the exchange rate. The transparent nature of the GST has kept Canadians acutely aware of their taxation.

 The Conservative Party of Canada reduced the tax by 1% (to 6%) on July 1, 2006 as part of an election promise. They again lowered it to 5%, effective January 1, 2008. This reduction was included in the Final 2007 Budget Implementation Bill (Bill C-28), which received Royal Assent on December 14, 2007.

In Canada the goods and services tax or GST is a federal tax of five percent on most goods and services sold in Canada for domestic consumption. Some goods and services are exempt from GST. These products are called zero-rated goods and services.

The Federal Goods and Services Tax (GST) is collected by the Canada Revenue Agency (CRA). GST is a tax that applies at a rate of 5% to the supply of most goods and services in Canada . Three provinces ( Nova Scotia , New Brunswick , and Newfoundland and Labrador ) harmonized their provincial sales tax with GST to create HST. HST applies to the same base of goods and services as GST, but at a rate of 13%. Of this, 5% is the federal part and 8% is the provincial part

Some specific products and services are exempt from GST. Such as

• Most health, medical, and dental services performed by licensed physicians or dentists for medical reasons;
• Child-care services;
• Long-term residential accommodation;
• Most goods and services provided by charities etc.

Several situations would require rebates, such as:

•   Amounts paid in error;
• Being a registered aboriginal person, tribal council member or band employed employee;  
• Specified services supplied to an investment plan or segregated fund;
• Non-resident recipient of a taxable supply of an installation service.
• Indians, Indian bands, and unincorporated band-empowered entities do not pay GST/HST on Canada

      GST/HST on taxable goods and services must be paid by diplomatic missions, consular posts, international organizations, diplomatic agents, consular officers, and designated officials of international organizations. They are however eligible to claim a GST/HST rebate, by filling out a GST/HST Rebate Application.
     The number of goods and services that are not exempt from GST is a lot more than those which are zero-rated.

Certain lower income segments of the population, while not exempt from paying GST, may be eligible to receive quarterly GST credits. The GST/HST credit is a tax-free payment that helps offset all or part of the GST or HST paid.

Provincial Sales Tax (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

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%.

Ontario also intends to collect HST instead of GST+PST starting from July 1, 2010 but yet it is a debatable issue. The Harmonized Sales Tax replaces the combination of GST and PST. 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.

To sum up the above there is still controversy in Ontario on the implementation of the HST.

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Author: Nagesh Bajaj

LawCrux Advisors (P) Ltd.

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