Can I Get a Tax Credit for the Sales Tax I Paid?
You pay federal sales tax on most items purchased in Canada, and depending on the province where you make the purchase, you often pay provincial sales tax as well.
If you have a low income, you may be eligible for a tax credit, and if you carry on a business, you may be able to get a credit for the business-related sales tax you pay.
In both cases you have to apply for the credit.
Sales Tax Overview
The federal government applies a sales tax, called the Goods and Services Tax, to most purchases in Canada. As of 2013, the GST rate is 5 percent. Most provinces apply an additional sales tax, either separately as a provincial sales tax, or together with the GST as a Harmonized Sales Tax.
As of April 1, 2013, the HST rate is 13 percent in Newfoundland, New Brunswick and Ontario, 14 percent in Prince Edward Island and 15 percent in Nova Scotia.
British Columbia applies a provincial rate of 7 percent, Manitoba 8 percent, Saskatchewan 5 percent and Québec 9.975 percent.
Alberta and the northern territories don't have a provincial sales tax.
To help low-income individuals and families, the federal government issues a GST/HST tax credit based on the most recent income tax return and paid out in quarterly installments. All Canadian residents who are at least 19 years old or are married or a parent are eligible, subject to income restrictions.
The provinces have similar sales tax credits. You have to apply to receive the credits by ticking the corresponding box at the beginning of your income tax return.
Québec issues a provincial sales tax credit as part of the "Solidarity Tax Credit," which you apply for one Schedule D of the provincial income tax return.
Business Sales Tax Credit
When you operate a business, you pay sales tax on the items you purchase, and you charge your customers sales tax. The federal government does not tax the items you buy for resale or for use in your business to produce the goods and services, and most provinces don't either.
As a result, you get a credit for the sales tax you paid on those items.
Francoise Doliveux, business manager for well-known comedian and Québec-based writer Lorne Elliott, says she has a simple but effective way of keeping track of the sales taxes and credits. "I keep a lined notebook and start a new page each month.
When I receive income, I note down the date when I received it, the amount, and the GST and QST (Québec sales tax) I received in separate columns.
When we pay a business expense, I note it down the same way and put the GST and QST paid in two additional columns."
At the end of the month, she adds up the GST received, GST paid, QST received and QST paid columns and subtracts the paid totals from the received totals.
The two resulting amounts are the sales taxes she owes to the federal and Québec governments. While Francoise keeps her records manually, her system demonstrates how sales taxes work for businesses, and the system can easily be transferred to a spreadsheet.
A typical income item would be a cheque from a theatre where Lorne performs, but Francoise ensures that expense items are business-related, such as the cost of the website, and not personal expenses such as groceries.
Registering Your Business
Only businesses registered for a particular sales tax may charge it and receive the corresponding tax credits. For the provinces that use the HST, you only have to apply to the federal government.
For these provinces, the federal government and for Québec, any business may register, but you must register if your gross sales are over $30,000 per year. Once you have registered and have received your tax numbers, you can collect the sales taxes and receive the tax credits.
For Manitoba, Saskatchewan and BC, provinces that collect their own sales taxes, you have to apply to each province in which you do business.
These provincial sales taxes apply at the retail level but not to business goods for resale. As a result, there are no business tax credits for sales tax paid at the provincial level in these provinces.
References & Resources
- TD Canada Trust: Canadian Taxes
- Canada Revenue Agency: GST/HST Rates
- Financial Post: Are You Out of the Loop on Sales Tax Changes?
- Canada Revenue Agency: GST/HST Credit - Application and Eligibility
- Revenue Québec: Solidarity Tax Credit
- Business Development Centre: GST/HST Number Registration
- Canada Revenue Agency: GST/HST General Information