What is the GST/HST System and How Does It Apply to Small Businesses in Canada?

 If you're running or planning to start a small business in Canada, understanding the GST/HST system is crucial. This tax framework impacts your pricing, invoicing, accounting, and compliance obligations — and if misunderstood, it could result in costly penalties or missed credits.

In this blog, we'll break down what GST/HST is, how it works, who needs to register, and what it means for small businesses.

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What is GST/HST?

GST stands for Goods and Services Tax — a federal value-added tax of 5% that applies to most goods and services sold in Canada.

HST stands for Harmonized Sales Tax — a combination of the federal GST and a provincial sales tax (PST) that is administered by the federal government as a single tax in certain provinces.

The GST/HST is a consumption tax — meaning the end consumer pays it, while businesses collect and remit it.

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GST vs. HST: What’s the Difference?

The main difference lies in which province you’re doing business in.

GST-Only Provinces and Territories (5%)

These provinces only charge the federal GST:

• Alberta

• British Columbia*

• Manitoba*

• Northwest Territories

• Nunavut

• Quebec*

• Saskatchewan*

• Yukon

*Note: These provinces also charge a separate provincial sales tax (PST or QST), administered independently from GST.

HST Provinces (Single Tax Rate)

These provinces charge a combined GST and provincial tax (HST), collected by the federal government:

• Ontario (13%)

• Nova Scotia (15%)

• New Brunswick (15%)

• Newfoundland and Labrador (15%)

• Prince Edward Island (15%)

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How Does GST/HST Work for Small Businesses?

When you register for GST/HST, you’re required to:

1. Charge the correct tax rate on taxable sales depending on the buyer’s province.

2. Collect and remit that tax to the Canada Revenue Agency (CRA).

3. File returns on a monthly, quarterly, or annual basis.

4. Claim Input Tax Credits (ITCs) on business expenses to reduce your tax payable.

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Who Needs to Register for GST/HST?

Mandatory Registration:

You must register if:

• You earn $30,000 or more in revenue (before expenses) in any 12-month period (this includes worldwide revenue if you're a Canadian business).

• You are a taxable supplier — meaning you sell goods or services that are not exempt from GST/HST.

• You are a non-resident carrying on business in Canada (in most cases).

Voluntary Registration:

Even if you earn under $30,000, you can choose to register voluntarily. This allows you to:

• Collect GST/HST on sales

• Claim Input Tax Credits on business expenses

• Establish credibility with clients and suppliers

Note: Once you register voluntarily, you must follow all GST/HST rules as if registration were mandatory.

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What is a Small Supplier?

A small supplier is a business or sole proprietor with:

• Less than $30,000 in revenue over four consecutive calendar quarters (12 months)

• No requirement to charge GST/HST

• No obligation to register

However, small suppliers can register voluntarily to claim Input Tax Credits (ITCs) and collect tax.

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What are Input Tax Credits (ITCs)?

Input Tax Credits are refunds you receive for the GST/HST paid on eligible business expenses. For example:

• Office supplies

• Inventory

• Equipment

• Professional services

• Rent

• Utilities

By claiming ITCs, you reduce the total amount of GST/HST you have to remit.

Example:

• You collect $5,000 in GST/HST from customers.

• You spent $2,000 on business purchases (with GST/HST).

• You claim $2,000 as an ITC.

• You only remit $3,000 to the CRA.

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How to Register for GST/HST

You can register:

• Online via CRA’s Business Registration Online

• By phone: 1-800-959-5525

• Through a professional accountant or tax service

To register, you’ll need:

• Legal name of your business

• Business Number (BN)

• Type of business structure

• Estimated revenue

• Business address and contact info

Once registered, you’ll receive a GST/HST account number.

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Charging the Right Rate

When invoicing customers, you must apply the correct GST/HST rate based on:

• Your customer’s location (not your business location).

• Whether the product or service is taxable, exempt, or zero-rated.

Province	HST Rate
Ontario	13%
Nova Scotia	15%
New Brunswick	15%
Newfoundland & Labrador	15%
Prince Edward Island	15%
All other provinces	5% (GST only)

For online or digital sales, where your customer resides often determines the applicable tax rate.

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How to Remit GST/HST

Businesses are required to file GST/HST returns on a regular basis — either:

• Monthly

• Quarterly

• Annually

Your filing frequency depends on your revenue and CRA preferences. You must:

• Report total sales

• Report GST/HST collected

• Claim Input Tax Credits

• Calculate the amount to remit (or refund, if you overpaid)

You can file:

• Online through CRA’s My Business Account

• Using accounting software (like QuickBooks, Wave, Xero)

• With the help of a tax professional

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What Happens If You Don’t Register?

Failing to register when required can result in:

• Penalties and interest charges

• Backdated tax liabilities (CRA may require you to pay taxes you should have collected)

• Loss of credibility with clients and vendors

• Ineligibility for Input Tax Credits

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GST/HST and E-Commerce or Online Businesses

If you're selling online (physical or digital products), GST/HST rules still apply.

Key points:

• You must charge tax based on the customer’s province.

• Even non-resident businesses selling to Canadian consumers may be required to register and remit.

• Online marketplaces like Amazon or Etsy may collect GST/HST on your behalf — check your seller agreement.

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Common GST/HST Mistakes to Avoid

1. Not registering on time

2. Charging the wrong rate for the wrong province

3. Failing to claim Input Tax Credits

4. Not keeping proper records

5. Missing filing deadlines

Keeping up with GST/HST obligations is easier with good bookkeeping practices and cloud accounting tools.

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Final Thoughts

Understanding and complying with the GST/HST system is essential for small business success in Canada. While it may seem complex at first, the process becomes straightforward once you grasp the basics.

Registering early, charging the correct rate, and claiming your ITCs can help you stay compliant and save money.

If you're unsure about your obligations or need help registering, it’s always a smart move to consult with a Canadian tax professional or accounta