Understanding GST/HST in Canada: A Guide

Ryan Dale-Johnson

Vice President of Business Development, NRI 3PL

For foreign businesses looking to sell in Canada, understanding the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) is essential. This guide provides a clear, simple explanation to help you navigate these taxes and highlights why they should never be seen as an added cost to your business.

What Are GST and HST?

GST (Goods and Services Tax): A federal tax of 5% applied to most goods and services in Canada.
HST (Harmonized Sales Tax): A combined federal and provincial tax in certain provinces, varying between 13% and 15%.
Other provinces charge GST plus a provincial sales tax (PST), or just GST.

Key Points to Understand:

1. GST/HST Is a Flow-Through Tax

You are NOT the one paying this tax. The consumer ultimately pays GST/HST at the point of purchase.
Your business acts as a collector of the tax on behalf of the Canadian government

2. GST/HST Does Not Affect Your Cost of Goods

GST/HST does not add to your business costs. Any GST/HST you pay to vendors or service providers as part of your operations is fully refundable.
The Canadian government allows you to claim Input Tax Credits (ITCs) for the tax paid, effectively reimbursing your business.

3. GST Paid on Import Is Fully Recovered

As a Non-Resident Importer (NRI), your company will pay GST on the value of goods imported into Canada.
When those goods are sold, you will collect GST/HST from your customers at a higher rate than you initially paid (if you sell in a province with HST).
After filing your GST/HST return, you will reclaim the import GST as part of your Input Tax Credits and remit only the net difference to the government.

4. Filing Regular Returns Ensures Refunds

As a registered business, you file regular tax returns (typically quarterly) to:
- Report GST/HST collected on sales.
- Claim back GST/HST paid (on imports and other expenses)
The result? A zero net cost to your business.

Example: How GST Works for a Non-Resident Importer

1. Goods Imported into Canada

You import $10,000 worth of goods into Canada.
GST (5%) on import = $500 paid to the government.

2. Goods Sold in Canada

You sell those goods to Canadian customers for $20,000.
GST/HST (e.g., 13% in Ontario) collected on sales = $2,600.

3. Filing Your GST/HST Return

GST paid on import: $500 (refundable).
GST/HST collected on sales: $2,600 (remitted).
Net to you: $2,100 is sent to the government, but you keep the difference between what you paid on import and what you collected.

Why Is GST/HST Important for non-Canadian Businesses?

Compliance: Avoid penalties by understanding your obligations.
No Additional Cost: GST/HST is reimbursed, ensuring the tax has no impact on your margins.
Cash Flow Awareness: Filing regularly ensures you reclaim taxes paid while fulfilling your obligations.

Simple Steps to GST/HST Success

Register for a GST/HST Number: Required for selling into Canada.
Charge GST/HST: On all applicable sales to Canadian consumers.
Track Input Tax Credits: Save records of all GST/HST you pay, including on imports.
File Regular Returns: To reclaim taxes paid and remit taxes collected.

Need Help?

Navigating Canadian taxes can feel complex, but we’re here to make it simple. With over 25 years of experience helping businesses expand into Canada, we can guide you through GST/HST registration, compliance, and filing.

Contact us today to learn how we can support your growth in the Canadian market.