The Goods and Services Tax (GST) is a tax levied on sales of goods and services by the Canada Revenue Agency.
Value Added Tax
The Goods and Services Tax is collected as a value added tax. This means that it is levied at each stage of the production process, and is known as a cascading sales tax. (For an explanation of how value added taxes such as the Goods and Services Tax work, go to the end of the article. Essentially it is felt be the consumer in the same way as a sales tax.
Tax free items
There are a number of items that are either “zero rated” or “exempt”. The net effect to the consumer is the same, in that they pay no Goods and Services Tax, however to the vendor it is different as they can reclaim the input tax on zero rated goods, but not on exempt goods.
- Basic groceries
- Medical devices and prescription drugs
- Some forms of transport
- Some exports
Tax-exempt items include:
- Dental and health care
- Residential rents for long term tenancies
- Financial and legal services
- Day-care and education services
In all provinces apart from Quebec the Goods and Services Tax is administered by the Canada Revenue Agency. Qubec administers the Goods and Services Tax through it’s tax authority, the Revenu Quebec.
Provincial sales taxes
Alberta does not charge a provincial sales taxes (PST), along with the federal territories of Yukon, Northwest Territories and Nunavut. All other provincial governments do levy the sales tax at a provincial level. The provincial sales taxes of Nova Scotia, New Brunswick and Newfoundland and Labrador are part of the Harmonised Sales Tax. Both Quebec and Prince Edward Island apply provincial sales tax to the sum of price and Goods and Services Tax (which has the effect of increasing it), whereas all the other provinces do not take the GST into account when charging their sales tax.
Harmonised Sales Tax
The Harmonised Sales Tax replaces the Goods and Services Tax in the three provinces of New Brunswick, Nova Scotia and Newfoundland & Labrador. It combines the provincial sales tax (PST)with the Goods and Services tax (GST). It therefore is at a higher rate, although it functions in the same way as the Goods and Services Tax. Ontario will adopt the HST tax model in June 2010.
Rates of Goods and Services Tax per province
Sales Tax is levied at different rates in different provinces:
- Alberta - 5%, GST only
- British Columbia - 5% GST and 7% local tax (PST)
- Manitoba - 5% GST and 7% (PST)
- New Brunswick - 13% Harmonised Sales Tax
- Newfoundland and Labrador - 13% Harmonised Sales Tax
- Nova Scotia - 13% Harmonised Sales Tax
- Ontario - 5% GST and 8% (PST)
- Prince Edward Island - 5% GST, 10% (PST) and a .5% uplift on the local tax
- Quebec - 5% GST, 7.5% (PST) and .375% uplift on the local tax
- Saskatchewan 5% GST and 5% (PST)
To illustrate this cascade, or waterfall, let’s take the example of a chair. The wood is cut down by and sold to the furniture store for $10, and the Goods and Services Tax is charged on the wood cutter at 5%, so 50 cents (which this to the price). The furniture factory then converts this into a chair and sells it to the furniture store at $25. They are now due to pay $1.25, however they can offset the 50 cents that the wood cutter has paid. Finally the furniture store sells it at $50. They also pay 5% and repay the tax they input. The consumer pays $50, plus $2.50 tax (it’s not included in the final price)