Almost all commodities in Canada are taxable, whether they are purchased or brought in. In Canada, there are two types of taxes: GST, the general sales tax, and the PST, the provincial sales tax. This tax is combined with the HST. If you live in a province that collects the HST on behalf of the federal government, you may have to pay that money back to the federal government.
HST is currently being imposed by five provinces: Ontario, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, and New Brunswick. A 13% HST rate was implemented by Ontario in 2010 along with a 5% GST and an 8% PST.
However, certain items and services are exempt from the HST in Ontario, even though the majority of products and services will be charged the HST. In terms of the categories of goods and services, the Canada Revenue Agency (CRA) breaks them down into three categories.
- It is deductible from taxes.
- Zero-Rated;
To be considered taxable, a good or service must be subject to 13% taxation and must qualify for tax credits (Input Tax Credits). So, what are the items that are not subject to the Ontario HST? What should you do if you are unsure of how much HST to charge and whether you are paying the correct amount of this tax?
Who is responsible for paying the HST?
A customer is required to pay HST at the time of purchase on all products and services that are subject to HST. After the company has filed its HST return, it sends this part of the HST to the Canada Revenue Agency.
To comply with Canadian law, if your business generates more than $30, 000 in a calendar quarter or eight consecutive quarters in Canada, you may need to apply for an HST number. Once you receive your HST number, you must immediately charge and remit the tax upon receiving it. The threshold for being classified as a small business supplier has not been met. If it does not exceed this amount, then you are exempt from collecting and remitting HST.
The HST number can be obtained voluntarily by business owners whose revenue is below a particular threshold. For companies that offer zero-rated products, this feature is particularly useful. HST tax credits, or ITCs, can also be claimed on goods that are subject to HST. To minimize your tax bill, you can claim ITCs on the HST paid on your commercial purchases as well as on your operating expenses.
How Does the HST Exemption Work?
The term "HST Exempt" refers to goods and services that are not subject to HST. A business is not liable for paying HST on purchases made within the scope of the HST return because the business is not collecting the HST and, therefore, it is not remitted by the business.
Importantly, since no HST was paid by the business, there is no claimed input tax credit on any HST that may have been claimed.
Many products and services in Ontario are exempt from the HST, so take a moment to review the list below. It is generally not possible for your business to register for an HST number if it exclusively supplies products and services exempt from the HST. If your business is a financial institution in Canada, you are the only company that doesn't have to do this.
Here are some things and services in Ontario that aren't taxed by the HST:
In Ontario, the Canada Revenue Agency (CRA) sets out what goods and services are exempt from HST. Many items and services are exempt from the HST. Examples include the following: However, keep in mind that it is not limited to these.
- An individual sells the residence they used as their primary residence for the last time.
- There is no HST when you rent residential space for a long time (more than a month).
- Fees associated with residential condominiums
- Licensed physicians and dentists provide the majority of health-related and medical services.
- drugs prescribed by a physician.
- The services provided by child care and daycare centres are not subject to the HST. A place where children under the age of 14 are looked after and supervised for less than 24 hours a day.
- Ferries operating within the domestic market
- Services for legal assistance
- Many education services
- Vocational schools give people certificates or diplomas that show they can work in a trade or a job.
- When tutoring services are used in conjunction with a school or school-related curriculum, they are not taxed.
- Musical lessons and teachings
- Banking institutions offer many services, including lending money and maintaining accounts. They are also tax-exempt.
- A policy from an insurance company or a policy set up by an insurance agent.
- There are a lot of public institutions and charities that own or rent most of the properties.
- The government, nonprofits, cities, and other government entities provide certain goods and services, like transportation in and out of communities, as well as basic household services like water, that aren't taxed. These are all things that aren't taxed.
Forms for HST Exemption
Lines 90 and 91 of your HST return should indicate whether an item or service is HST exempt or zero-rated. Most of the time, these goods and services do not require a separate form to be exempt from the HST.
You may choose to not pay HST on supplies acquired from a business or part of a business, in the case of a business acquisition. Therefore, if an acquisition is being made of the whole or part of a business, you will need to file form GST44 for GST exemptions. It is good to make things easier for businesses that are related to yours by not charging them HST.
It is necessary to report the sale of a point of sale rebate in Ontario using specific tax forms. Among these are:
- Rebate for Newspapers at Points of Sale (GI-060)
- Food and beverage rebates at the point of sale GI-064
- Rebate on books at the point of sale, GI-065
- Rebate for kids' goods at the point of sale GI-063
- Form GST 189, Application for Receipt of GST/HST, This form is used to ask for rebates for which there aren't any rebate forms.
How to accurately charge HST in Ontario
Taking care that you are correctly charging your customers the HST on applicable products and making sure that you are not charging them HST on exempt products is one of your responsibilities as a small business owner. The culture of levying HST on exempt items would leave your business with a negative reputation and a risk of penalties and fines.