What Is VAT in Canada? GST, HST, PST, and Registration Rules

Canada does have a value-added tax, it just doesn’t use that name. The federal Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) work exactly like a VAT in Canada: tax is collected at every stage of production and distribution, and a credit mechanism ensures the cost ultimately falls only on the final consumer. Both are governed by the federal Excise Tax Act and administered by the Canada Revenue Agency (CRA), with combined rates running from 5% to 15% depending on the province. Some provinces layer their own separate provincial sales tax on top.¹

Three Tax Structures, One Country

The 5% federal GST applies everywhere. What varies is the provincial layer, and Canada uses three different arrangements to handle it.

Alberta, the Northwest Territories, Nunavut, and Yukon charge only the 5% federal GST. Nothing is added on top.¹

Five provinces have harmonized their provincial component with the federal GST into a single HST that businesses collect and remit as one tax. Ontario’s HST is 13%. Nova Scotia’s HST dropped to 14% on April 1, 2025, after the province cut its provincial portion from 10% to 9%.² New Brunswick, Newfoundland and Labrador, and Prince Edward Island each charge 15%.¹

Four provinces run a separate provincial sales tax alongside the federal GST, and businesses there deal with two tax authorities. British Columbia adds a 7% PST, Manitoba adds 7%, and Saskatchewan adds 6%. Quebec runs its own parallel Quebec Sales Tax at 9.975% on top of the 5% GST.³ In these provinces, sellers calculate and remit two taxes to two different governments.

Which rate applies to a given sale usually depends on where the buyer is, not where the seller is. For physical goods shipped or delivered, the destination province’s rate controls. For services, the default is the recipient’s Canadian address as obtained in the normal course of business.⁴ A web designer in Alberta building a site for a client in Nova Scotia charges 14%, not 5%.

What Gets Taxed and What Doesn’t

Every good or service falls into one of three categories, and the category controls both what you charge and what you can recover.

Taxable Supplies

Most things are taxable at the standard rate for the province. Car repairs, hotel stays, accounting services, electronics, clothing, and restaurant meals all fall here.⁵

Zero-Rated Supplies

Zero-rated supplies are technically taxable but at a rate of 0%. The customer pays nothing, but the seller can still claim credits for the tax paid on inputs. Basic groceries like milk, bread, and vegetables are zero-rated, along with prescription drugs, certain medical devices including hearing aids, and most goods exported from Canada.⁵ This is why a grocery store can recover the GST/HST on its rent and equipment even though most of its sales carry no tax.

Exempt Supplies

Exempt supplies sit outside the system entirely. Long-term residential rents, most financial services, childcare for children under 14, and health and dental services performed by licensed practitioners are all exempt.⁵ The catch: a business making exempt supplies cannot claim credits for tax it paid on its own purchases. A dentist absorbs the tax on supplies and equipment as a cost of doing business. A business that only makes exempt supplies generally cannot even register for the GST/HST.⁶

The Credit Mechanism That Makes It a VAT

The input tax credit (ITC) is what turns the GST/HST into a value-added tax instead of a cascading sales tax. Registered businesses recover the GST/HST they paid on business purchases by claiming ITCs on their return. They then remit only the difference between the tax collected from customers and the tax paid on inputs. When credits exceed collections, the CRA sends a refund.⁷

Eligible purchases include office supplies, commercial rent, utilities, raw materials, and professional fees. The purchase has to relate to making taxable or zero-rated supplies. Anything bought to produce an exempt supply carries no credit.⁷

Some expenses give only a partial credit. Most businesses can claim 50% of the GST/HST paid on meals and entertainment; long-haul truck drivers get 80%.⁸ Some categories give nothing: club memberships for dining, recreational, or sporting facilities; property or services bought exclusively for an employee’s personal enjoyment; a home office that isn’t your principal place of business and isn’t regularly used for meeting clients.⁹ When a business makes both taxable and exempt supplies, ITCs must be apportioned. If at least 90% of a purchase goes to commercial use, the full amount is eligible.

Who Has to Register

Registration is mandatory once your worldwide taxable revenue exceeds $30,000 over the most recent four consecutive calendar quarters. At that point you stop being a small supplier and have 30 days to apply.¹⁰ If you cross $30,000 within a single quarter, you must register by the end of the month following that quarter.¹¹

Businesses below the threshold can register voluntarily. Without registration, you cannot claim ITCs, so a startup with heavy up-front spending on equipment, inventory, or renovations often registers early to recover the tax on those costs.¹² The trade-off is that you then charge the tax to customers, which can hurt if your competitors are unregistered small suppliers.

Non-Resident Digital Businesses

Since July 2021, foreign businesses selling digital products or services to Canadian consumers, or operating platforms for short-term accommodation in Canada, must register under a simplified GST/HST framework. Simplified registrants charge and collect the tax but cannot claim ITCs to recover tax on their own Canadian purchases.¹³ A non-resident that qualifies for normal registration can switch to the standard regime to gain ITC access, but it cannot hold both registrations at once.

Filing Frequency and Deadlines

How often you file depends on your annual taxable revenue.

Monthly filing is required when annual taxable supplies exceed $6 million.¹⁴
Quarterly filing is the default at $6 million or less.
Annual filing is available by election when annual taxable supplies are $500,000 or less. Quarterly instalments still apply.

Monthly and quarterly filers must submit the return and payment within one month after the reporting period ends. Annual filers with a December 31 year-end pay by April 30 and file by June 15. For other year-ends, both the return and payment are due three months after the fiscal year ends.¹⁵

Simpler Options for Small Registrants

The CRA offers two shortcuts for smaller businesses. Both are optional.

The Quick Method lets you remit a flat percentage of your tax-inclusive revenue instead of tracking the actual GST/HST paid on every purchase. The remittance rate varies by province and by whether you sell goods or services. A service provider in a GST-only province, for example, remits 3.6% of revenue including tax; a goods reseller in the same province remits 1.8%. You also get a 1% credit on the first $30,000 of eligible revenue each fiscal year. Eligibility caps annual worldwide taxable supplies (including those of associates) at $400,000, and certain professions are excluded, including accountants, lawyers, actuaries, tax consultants, and bookkeepers.¹⁶

The Simplified Method for ITCs is different. You still file a normal return, but you calculate credits with a formula instead of itemizing tax on each receipt: total your purchases at each tax rate including the tax, then multiply by the tax fraction (5/105 for 5% GST, 13/113 for 13% HST, and so on). It’s available if your annual worldwide taxable revenue is $1 million or less and your taxable purchases are $4 million or less. No election form is required.¹⁷

Penalties, Interest, and Records

Filing late when you owe money triggers a penalty of 1% of the amount owing plus 0.25% of that amount for each complete month the return is late, up to 12 months. No penalty applies when nothing is owed or a refund is due.¹⁸

Interest accrues on unpaid balances and compounds daily. As of the second quarter of 2026, the CRA charges 7% annual interest on overdue GST/HST remittances.¹⁹ The rate updates quarterly, so confirm the current figure on the CRA’s prescribed interest rate page before relying on it.

Registered businesses must keep invoices, receipts, and supporting records for at least six years from the end of the year they relate to. Destroying records earlier requires written permission from your local tax services office.²⁰ This matters most for ITC claims: without documentation linking each credit to a specific business purchase, the CRA can deny it on audit and reassess the tax owing, with interest running back to the original reporting period.

1
Canada Revenue Agency. Charge and Collect the GST/HST
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Canada Revenue Agency. Nova Scotia HST Rate Decrease – Questions and Answers
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Revenu Québec. GST/HST and QST
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Canada Revenue Agency. GST/HST Rates and Place-of-Supply Rules
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Canada Revenue Agency. Type of Supply
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Canada Revenue Agency. General Information for GST/HST Registrants
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Canada Revenue Agency. Input Tax Credits
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Canada Revenue Agency. Calculate Input Tax Credits – ITC Eligibility Percentage
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Canada Revenue Agency. General Restrictions and Limitations
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Department of Justice Canada. Excise Tax Act RSC 1985 c E-15 – Section 240
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Canada Revenue Agency. When to Register for and Start Charging the GST/HST
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Canada Revenue Agency. Register Voluntarily for a GST/HST Account
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Canada Revenue Agency. Register for the GST/HST – Digital Economy Businesses
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Canada Revenue Agency. Authorized Fiscal Periods and Reporting Periods GST 500-2-1
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Canada Revenue Agency. Reporting Requirements and Deadlines
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Canada Revenue Agency. Quick Method of Accounting for GST/HST
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Canada Revenue Agency. Calculate Input Tax Credits – Methods to Calculate the ITCs
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Canada Revenue Agency. GST/HST Filing Penalties
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Canada Revenue Agency. Interest Rates for the Second Calendar Quarter
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Canada Revenue Agency. GST/HST Records to Keep