For understanding HST, the Harmonized Sales Tax (HST) is a consumption tax levied on the sale of goods and services in certain Canadian provinces. It combines both the federal Goods and Services Tax (GST) and the provincial sales tax into a single tax known as the HST. Let’s delve into the key aspects of HST and its implications for businesses and consumers.
Understanding HST: Streamlining Taxation Across Canada
The implementation of the Harmonized Sales Tax (HST) has brought a significant transformation to the taxation landscape in several Canadian provinces. Notable among these are Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. These provinces have undertaken the harmonization of their provincial sales tax with the federal Goods and Services Tax (GST), marking a strategic move to simplify tax collection processes and alleviate administrative intricacies.
The provinces that have implemented HST include Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. These provinces have harmonized their provincial sales tax with the federal GST to streamline tax collection and reduce administrative complexities.
For businesses, HST means they need to charge the appropriate tax rate on their goods and services.
The tax rates can vary slightly from province to province, and some items might be exempt or zero-rated, depending on their nature. Businesses are also responsible for remitting the collected HST to the government and filing HST returns.
Tax rates may exhibit slight variations between provinces, and certain items could be exempt or subject to zero-rating, contingent upon their inherent characteristics. Furthermore, it falls under the purview of businesses to remit the accumulated HST to the government and fulfill the requirement of filing HST returns.
Consumers, on the other hand, pay the HST when they purchase taxable goods and services.
The tax is included in the total price, making it crucial for consumers to be aware of the HST rate applicable in their province. It’s important to note that some essential items like basic groceries and medical services are usually exempt from HST.
In conclusion, HST is a comprehensive tax system that combines the federal GST with provincial sales tax in select Canadian provinces. Understanding how HST affects businesses and consumers is essential for making informed financial decisions.
GST/HST Credit and Payment
Unless you exclusively buy from a select range of exempt items, most of your purchases will be subject to Canada’s goods and services tax (GST). To help alleviate the financial burden of sales tax, the federal government offers the GST/HST credit to eligible Canadians and their families.
This includes various goods and services, real estate transactions, and even purchases of digital downloads. In certain provinces, the GST is combined with the provincial sales tax to create the harmonized sales tax (HST).
What the GST/HST credit is?
The Canadian tax system offers a range of tax credits, but the GST/HST credit stands out as it is paid out in installments and is not simply applied to the amount of federal tax owed or refunded. The GST/HST credit is a tax-free quarterly payment designed to reduce the burden of GST and HST on those with low or modest incomes when they purchase goods and services. Eligibility extends to families and individuals, and the credit may include payments from provincial and territorial tax credit programs.
When you file your taxes, the GST/HST credit is automatically assessed, and you may be required to make individual payments based on your family’s income and the number of children under 19 living with you. In 2023, the credit amount varies depending on your circumstances: if you are single, you could receive $456; if you have a common-law spouse, you could receive $598, plus an additional $157 for each child under the age of 19 living with you.
Who is eligible for the GST/HST credit?
To be eligible for the GST/HST credit, you must be a Canadian resident for income tax purposes in the month before and at the start of the month in which the CRA makes the payment. You also need to fulfill at least one of the following requirements:
- Be 19 years of age or older
- Have a spouse or common-law partner, or had one in the previous year
- Be a parent who lives or previously lived with their child
If you share custody of a child, you may qualify for half of the GST/HST credit, along with any applicable provincial and territorial credits.
However, you are not eligible for the GST/HST credit if you are a non-resident for tax purposes in Canada, an overseas official, or a foreign employee who avoids paying taxes in Canada. Additionally, if you have been incarcerated for 90 or more consecutive days in a jail or other type of penal facility, you cannot claim the credit.
What is the process for applying for a GST/HST credit?
If you are a Canadian resident and file an annual tax return (even if you have no income to declare), you will automatically be eligible for the GST/HST credit. However, if you are a new resident of Canada, you must complete a form and deliver it to a nearby tax center. The specific form required depends on whether or not you have children.
If you have children, you will need to fill out the Canada Child Benefits Application (Form RC66), which covers all child and family benefits, including the GST/HST credit for Understanding HST. If you don’t have children, you’ll need to fill out Form GST/HST Credit Application for Individuals Who Become Residents of Canada.
You may also apply for the GST/HST credit for your child. If you have already filed for and received the Canada Child Benefit (CCB), you are likely already eligible for their portion of the GST/HST credit. However, if you haven’t applied for the CCB or have had another child since, your child may need to be registered for the GST/HST tax credit.
You can accomplish this by selecting “apply for child benefits” through My Account on the CRA website. You will need to verify your identity, citizenship, and marital status, as well as provide basic information about your child, including their name, gender, and date of birth.
What is the method for calculating the GST/HST Credit?
The GST/HST credit payments are calculated by the Canadian Revenue Agency through the addition of supplements based on factors such as children and dependents, family net income, and other considerations to a base credit amount of $299. The payments gradually decrease after your net income exceeds $38,892. Here is a summary of the basic calculations involved:
- A base credit of $299
- PLUS a credit of $299 for a spouse or common-law partner
- PLUS a credit of up to $157 for each child if the family’s income exceeds $9,686
- MINUS a reduction of 5% if your net income exceeds $38,892
If you are single, childless, and earn more than $48,012, you will not be eligible for GST/HST credits. To determine the amount of credit you will receive, you can use the GST/HST credit computation sheets provided by the CRA or the CRA’s online calculator for Understanding HST to calculate your GST/HST credits and Canada Child Benefits.
How to Apply for a GST/HST Credit
Normally, the Canada Revenue Agency (CRA) automatically enrolls eligible individuals for the GST/HST credit. However, if you are a new resident of Canada or have a child who is not enrolled in the Canada Child Benefit (CCB), you may need to apply.
For new immigrants to Canada, you can claim the GST/HST credit by submitting one of the following forms to the CRA tax office:
- If you are a Canadian citizen without children, use Form RC151 to apply for the GST/HST credit.
- If you have children, use Canada’s Form RC66 Child Benefits Application for Residents with Children to apply for all child and family benefits, including the GST/HST credit.
GST/HST Credit Eligibility for a New Child
Adding a new child to your household makes them eligible for the GST/HST credit, whether they are a new addition or have just moved in with you. There are two options to do so: you can either submit a Canada Child Benefits (CCB) application through the “CRA My Account” or add the child to your household.
In conclusion, this blog aims to provide you with a better understanding of the GST/HST credit, which may seem complex. However, you can always seek professional assistance if needed.
Differences Between HST and EHT
Purpose and Application:
HST is a consumption tax applied to the sale of goods and services in specific provinces. It combines the federal Goods and Services Tax (GST) with the provincial sales tax, streamlining tax collection and administration.
EHT, on the other hand, is a payroll tax levied by the province of Ontario. It’s calculated based on the total remuneration paid to employees and is used to fund Ontario’s health care system.
HST impacts both businesses and consumers. Businesses are responsible for charging and collecting the appropriate HST on taxable goods and services. Consumers pay HST when they make purchases.
EHT primarily affects employers in Ontario. Employers with payrolls exceeding a certain threshold are required to pay EHT based on their total payroll expenses.
Calculation and Rates:
HST rates can vary slightly between provinces, but it’s generally a percentage of the purchase price of taxable goods and services. Some items might be exempt or zero-rated, affecting the total HST payable.
EHT is calculated based on total remuneration paid to employees. The tax rates and thresholds for EHT can change annually, and there are exemptions available for certain types of employers.
Reporting and Remittance:
For HST, businesses are responsible for reporting the collected HST and remitting it to the government. They must file HST returns regularly to ensure compliance.
Employers subject to EHT must calculate their liability based on their payroll and remit the tax to the government by the required deadlines. Failing to accurately report and remit EHT can result in penalties.
In conclusion, while both HST and EHT are forms of taxation in Canada, they serve different purposes and target different entities. Businesses and individuals should familiarize themselves with the specifics of each tax to fulfill their financial obligations properly.
For businesses operating in provinces with Harmonized Sales Tax (HST) and the Employer Health Tax (EHT) in Ontario, managing these tax obligations efficiently is essential. Here are some practical tips to help businesses navigate their HST and EHT responsibilities effectively:
Managing HST and EHT:
Understand Taxable Items:
Familiarize yourself with the types of goods and services subject to HST. Some items might be exempt or zero-rated, affecting how you charge and remit HST.
Accurate Record Keeping:
Maintain meticulous records of your sales, purchases, and HST collected. This will help ensure accurate reporting and make the process smoother during tax filing periods.
Choose Reliable Software:
Invest in reliable accounting or e-commerce software that can automate HST calculations and help you generate accurate reports.
File and Remit on Time:
Timely filing and remittance of HST are crucial to avoid penalties. Set reminders or use automated systems to ensure you meet deadlines.
Tax regulations can change, affecting HST rates or exemptions. Stay informed about any updates to ensure compliance.
Determine EHT Liability:
Regularly assess whether your business’s payroll exceeds the EHT threshold. If it does, you’ll need to calculate and remit EHT.
Be aware of EHT exemptions for specific types of employers, such as charities or non-profit organizations. Ensure you qualify for any exemptions you’re claiming.
Accurate Payroll Records:
Maintain accurate records of employee remuneration, as this information is crucial for calculating EHT liability.
Use Payroll Software:
Consider using payroll software that can assist with EHT calculations, reducing the risk of errors.
Plan for Deadlines:
Mark EHT remittance deadlines on your calendar and set up systems to ensure timely payments.
If your business has complex payroll structures or you’re unsure about EHT requirements, consult a tax professional to ensure compliance.
By following these tips, businesses can effectively manage their HST and EHT obligations, ensuring accurate reporting, timely remittance, and compliance with tax laws.