VAT in Canada: How GST, HST, and PST Really Work

Canada does not have a traditional value-added tax. Instead, Canada imposes taxes using a three-part framework:

• Goods and Services Tax (GST)
• Provincial Sales Tax (PST)
• Harmonized Sales Tax (HST)

The Canadian tax framework is similar to a VAT system at the federal level and more akin to a U.S. sales tax system at the provincial level. 

Business owners need to know that this layered system of federal tax and provincial taxes makes compliance more difficult. Tax compliance also depends on customer type (B2B vs B2C). 

Not sure where to start? Well, you’re in the right place! Find out when to register to pay Canadian taxes and each step in the registration process. Learn how to calculate taxes, Canada’s filing requirements, and the tax payment process. 

You’ll have a game plan for doing business in Canada and start to scale with peace of mind.

Monitoring Tax Obligations in Canada

Your business may sell multiple products and services in different Canadian provinces, and you need to understand when a transaction generates a tax obligation. For starters, let’s define the three types of Canadian taxes that may impact your business.  

• Goods and Services Tax (GST): Canada levies a tax on many goods and services purchased in Canada. GST is based on consumption and is assessed at different points in the supply chain. A consumption-based tax is an indirect tax.
• Provincial Sales Tax (PST): GST is levied at the federal level, and PST is imposed at the provincial level. Provinces assess a consumption tax on goods and services consumed within the province.
• Harmonized Sales Tax (HST): HST is a combined federal and provincial tax.

Each Canadian province may have a different tax rate. 

There are exceptions to the rule, and that includes Quebec. The Quebec Sales Tax (QST) is a single rate for sales tax. The QST is not a harmonized sales tax combining federal and provincial taxes. It is a single tax charged by Quebec.

What Triggers GST/HST Registration

When does your business have to register with the tax authorities? 

Both resident and non-resident companies must register for GST/HST once they exceed (or expect to exceed) C$30,000 in B2C sales within a 12-month period. 

• Resident Business: A company incorporated in Canada.
• Non-Resident Business: A business incorporated outside of Canada, and the company’s central management and control are not located in Canada. When a non-resident business sells to a Canadian customer, it is defined as a cross-border transaction. 

The threshold applies to digital products and services sold to non-GST-registered Canadian buyers.

Provincial Thresholds (PST/QST)

Some provinces also have thresholds for tax registration:

• British Columbia: C$10,000
• Manitoba: C$30,000
• Saskatchewan: One sale triggers tax registration. The threshold is not based on a dollar amount.
• Quebec: C$30,000 

The PST and QST require a separate registration from the federal (GST/HST) registration. When it comes to tax compliance, Sphere provides the broadest jurisdiction coverage on the market.

Reverse Charge for B2B Sales

A reverse charge occurs when the responsibility for paying the GST or HST tax shifts from the non-resident seller to the Canadian buyer. 

The reverse charge only applies to the GST or HST portion of the transaction and not to the PST/QST portion. In other words, the Canadian GST-registered buyer self-assesses the tax. This policy is important because these B2B sales don’t count toward the registration thresholds. 

Here’s an example: Assume that a U.S. (non-resident) SaaS business sells $100,000 of software to a self-reporting GST in British Columbia. 

• GST Tax: The reverse charge mechanism is applied to the 5% GST. The seller does not have to collect the $5,000 tax. The Canadian business calculates tax due and files paperwork with the Canadian tax authority.
• PST Tax: The SaaS business collects the 7% ($7,000) PST tax because the reverse charge does not apply to provincial taxes. 

The SaaS company invoice includes a $100,000 sale and the $7,000 PST tax. 

Tools and Strategies for Tracking

As you can see, non-resident SaaS businesses must account for several sales variables, including sales by province and whether the company has reached certain thresholds. 

Use an automation tool like Sphere to track sales by province and thresholds each quarter. You’ll save time, reduce error risk, and recordkeeping is much easier.

Registration Requirements

You register with the Canada Revenue Agency (CRA) once you reach a threshold. The type of registration you choose depends on where you’re located and the type of business you conduct in Canada.

Federal GST/HST Registration Types

You must choose one of these registration methods:

• Normal Registration: Businesses based in Canada use this method. These firms can claim Input Tax Credits (ITCs) and use the credits to recoup GST/HST paid on business costs. A tax credit offsets a tax liability dollar-for-dollar
• Simplified Registration: For non-residents selling only to B2C customers. When you register using this method, you cannot claim Input Tax Credits.

Tax credits reduce your tax liability, so you should think carefully about registration and the benefits of tax credits.

When to Register

Businesses must register for GST/HST when they exceed tax thresholds. The CRA imposes these penalties and fees if companies don’t comply:

• Failure to file: 1% of the amount owed plus additional fees for each month the filing is late.
• Demand to file: If a business receives a Demand to File notice and doesn’t do so, the company pays a $250 fee.

Businesses pay additional penalties for failing to file electronically (when required) and for failing to accurately report tax information.

How to Register for GST/HST

Follow these guidelines to register for GST/HST:

• Gather the necessary information: This link lists the information you’ll need, including the effective date of registration, total annual revenue, and incorporation information. 
• Business number: After the CRA reviews and validates the information you provide, your business will receive a business number for tax filings.

If you use automated recordkeeping, supplying registration data is much easier. 

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Registering for PST and QST

You also need to register in the provinces where you do business. Each province needs documents that verify your business formation (corporation, partnership, etc). Sole proprietors and partners in partnerships will provide a driver’s license.

Here are some provincial registration requirements. 

British Columbia (BC)

Use this link to register and collect provincial sales tax. You’ll need a Certificate of Incorporation for a non-BC incorporated entity. 

Saskatchewan

Here’s a link to the Saskatchewan eTax Services where you can apply for a Provincial Sales Tax (PAT) number. The PAT number is used to collect and remit taxes and for tax filings. 

Manitoba

Manitoba offers this link for sales taxes, which includes bulletins, notices, and tax forms. TAXcess is an online service business used to file and pay taxes. You can apply here.

Quebec

You can register to collect QST taxes here. Use the link to register your business, collect taxes, calculate tax credits, and file tax returns.

Federal VAT registration is often required before provincial registration. You can determine the requirements on each province’s portal.

How to Calculate Tax in Canada

To comply with Canadian tax requirements, you must understand the differences between federal and provincial rates. With that information, you can apply the correct tax rate to the right types of products.

Understanding Federal and Provincial Rates

As explained earlier, GST is levied at the federal level, and PST is imposed at the provincial level. HST is a combined federal and provincial tax.

Here’s another distinction: GST and HST are value-added taxes assessed as a product moves through the supply chain. PST (and QST in Quebec) are retail sales taxes. You’ll see that term used in several of the provincial tax portals.

This table provides the tax type and current rate for each province. The information is taken from this Province Taxability Table:

Applying the Correct Rate

The correct tax rate depends on the province and the tax framework used by the province.

OK, so what determines the buyer’s province for tax purposes? The province is based on the buyer’s billing address or supply location. The other factor is the province’s tax framework. Consider these examples, based on the chart above:

• Ontario assesses taxes based on HST, the combined federal and provincial tax.
• British Columbia charges tax using GST and the PST rate for the province
• Quebec imposed tax by combining GST and the QST provincial rate

How SaaS Is Taxed for B2C and B2B

The CRA taxes digital products sold to both B2C and B2B customers. 

If your business registers for QST taxes, you can claim ITCs for QST payments. However, ITCs are not available for PST taxes. Simply put, you can claim ITCs at the federal level and for Quebec, but not for other provinces.

One more point: When a reverse charge shifts responsibility for taxes to the Canadian buyer, the B2B sale does not count toward the registration thresholds. This is one reason to track all sales. Reverse charges may keep you below a threshold for paying taxes on SaaS transactions.

Zero-Rated vs Exempt Sales

Here are two additional types of sales and the tax treatment of each sale.

Zero-rated supplies

As the name implies, the tax rate for zero-rate supplies is 0%. GST/HST is not charged on these supplies. Businesses can claim input tax credits on these sales.

This category includes basic groceries, prescription drugs, and some types of medical devices. These products fill basic needs for consumers, so no tax is assessed.

Exports of services are zero-rated, making Canadian exports more competitive in international markets.

Exempt supplies

These supplies are completely exempt from GST/HST, and businesses cannot claim ITCs for these supplies. Residential real property, many healthcare services, educational services, and financial services are exempt supplies.

Handling Multi-Rate Calculations

You may have different invoice formats based on industry standards or client preferences. The goal is to create an invoice clearly stating the dollar price and taxes owed.

If your business has to deal with multiple tax rates, submitting accurate tax reporting is more difficult. Ask your accounting software provider how you can handle this issue.

• Combined tax rate: You calculate a GST rate and a PST rate, then combine them into an HST rate. Nova Scotia, for example, assesses a combined 15% HST rate.
• Separate tax rates: List the GST and PST rates as separate line items. 

A single invoice may include both taxable and non-taxable products and services. To clarify the tax charges, you create a subtotal for the taxable items, then report the tax rate and tax amount. The non-taxable items are listed in another subtotal.

Canada phased out the use of the penny starting in 2012, and cash transactions must be rounded to the nearest 5 cents. The specific rules are explained here. Non-cash transactions are not impacted.

Choose a tax-aware billing system that generates accurate invoices using technology. Sphere uses AI-enabled tax technology and global tax authority integrations to ensure seamless operations for businesses of all sizes.

Filing Requirements

Businesses file tax returns for payroll taxes and other tax liabilities, and Canada is no exception.

GST/HST Filing Basics

Most GST/HST registrants must file tax returns online, with some exceptions explained here. 

Filing frequency is based on an annual taxable supplies threshold amounts:

• Annual filings: $1,500,000 or less
• Quarterly filings: More than $1,500,000 up to $6,000,000
• Monthly filings: More than $6,000,000

Monthly and quarterly filers must file the return and remit any amount owed no later than one month after the end of the reporting period. Annual filers must file the return and remit any amount owed no later than three months after the fiscal year ends.

Provincial PST/QST Filing

Canadian provinces also have filing requirements. Here are the rules for two large provinces:

Quebec

Businesses file using the Revenu Québec link. The province follows the GST/HST filing deadlines for annual, quarterly, and monthly returns and the GST/ HST annual taxable supplies threshold amounts. 

British Columbia

Use the eTaxBC platform to file tax returns electronically. Businesses with at least $1.5 million in total Canadian sales and leases per year must file returns and remit PST electronically.

Filing frequency depends on the amount of PST tax you collect each year. Note that the requirement is based on taxes collected, not taxable sales.

• $3,000 or less: Quarterly, semi-annual, or annual filing
• $3,001 to $6,000: Quarterly or semi-annual filing
• $6,001 to $12,000: Monthly or quarterly filing
• More than $12,000: Monthly filing

What Goes in a Return

The tax return includes gross sales, the taxes collected on the sales, and any adjustments and refunds. The return reports Input Tax Credits (ITCs) used to recoup GST/HST costs.

Recordkeeping and Deadlines

Businesses must keep records for six years from the end of the year to which they relate. This includes all sales and purchase invoices. 

If the CRA is auditing your tax returns, you must keep the audit-related records until the matter is fully resolved.

The “When to Register” section above lists these penalties and fees if businesses don’t comply:

• Failure to file: 1% of the amount owed plus additional fees for each month the filing is late.
• Demand to file: If a business receives a Demand to File notice and doesn’t do so, they pay a $250 fee.
• Additional penalties for failing to file electronically (when required), and for failure to accurately report tax information.

If you do business in Canada, you need a reliable system to comply with federal and all provincial tax requirements.

Remitting the Tax

Finish the process by sending payments and confirming receipt. 

How to Remit GST/HST

You have several payment options. Businesses can remit electronically, remit through a financial institution in Canada (also electronic), or send payments by mail. Payments of $10,000 or more must be paid electronically or through a financial institution.

A business can remit using a debit card through the CRA’s My Payment option. You can also authorize the CRA to withdraw a predetermined payment from your bank account to pay tax on specific dates.

You can apply with the CRA to remit payments using the U.S. Dollar or the Euro. 

Remitting PST and QST

To remit PST and QST taxes, refer to each province’s tax portal. Verify the account number and other data before you submit payments.

Confirming Payments

When you confirm payments, you sharply reduce the risk of fraud or theft. Keep payment documentation, including confirmation emails and wire receipts. 

These records also prove that the payment was made on time and for the correct amount. You can provide the records to verify tax compliance if your tax payments are audited. 

Automating the Process

The Harvard Business School reports: “As organizations adapt to an unpredictable landscape, those that invest in automation are poised to reap significant cost savings and productivity benefits.”

Sphere supports automated tax filing and remittance to reduce risk across multiple jurisdictions. Business owners should consider automating each routine task to scale with less effort.

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The Bottom Line: Sales Tax in Canada Doesn’t Have to Be Overwhelming

Canada’s tax system (GST, HST, PST, and QST) can feel confusing, especially for SaaS companies selling in multiple provinces. But with the right setup, staying compliant is possible without wasting time or risking penalties.

Tax compliance can eat up your staff’s time. Trying to track thresholds, register in different provinces, and keep up with filing and payments is a lot — especially for small finance teams. That’s where automation becomes helpful.

Sphere provides global tax compliance on one platform. Here’s how:

• Covers all the bases: End-to-end tax compliance solutions with the broadest jurisdiction coverage on the market.
• AI capability plus tax experts: You get a tax-focused AI system with expert tax professionals, ensuring accurate tax reporting and compliance with tax laws worldwide.
• Registration alerts: Sphere integrates with your billing stack and payroll provider to alert you when you need to register for tax in a jurisdiction.

Sphere can calculate tax rates, handle filings, and process payments so teams can stay on top of sales tax without extra stress.