Effective July 1, 2016, Newfoundland and Labrador increased its harmonized sales tax from 13% to 15%. The increase is based on a jump in the provincial portion of HST, from 8% to 10%. The federal portion of the province’s HST remains at 5%.
What Is HST?
Harmonized sales tax results when a province harmonizes its provincial sales tax with Canada’s federal goods and services tax. Newfoundland and Labrador harmonized its sales tax in 1997, and it is one of only five provinces to use HST. Called the participating provinces, the other provinces include New Brunswick, Nova Scotia, Ontario, and Prince Edward Island. As of 2016, all of these provinces charge a 15% HST except Ontario, which has a 13% HST.
What Is the Alternative to HST?
Before adopting HST, Newfoundland and Labrador assessed provincial sales tax and Canada’s federal GST separately. Many provinces, including British Columbia, Manitoba, Quebec, and Saskatchewan, continue this practice, and these provinces have PST ranging from 5% in Saskatchewan to 9.975% in Quebec. In Quebec, PST is referred to as QST or Quebec sales tax.
What Is the Goods and Services Tax?
GST is a federal tax applied to the sale of taxable goods and services. As of 2016, this federal tax is 5%. Even provinces and territories that don’t have PST or HST must charge GST – Alberta, the Northwest Territories, Nunavut, and the Yukon do not have PST or HST, but consumers pay 5% GST in these areas.
For example, if you buy a taxable item for $100 in Newfoundland and Labrador, you pay $15 in tax, which is $5 of federal GST and $10 of provincial tax. In contrast, In Alberta, you only pay $5 in GST. The total price with tax in Newfoundland and Labrador is $115, and the total price in Alberta is only $105.
Which Purchases Are Taxable?
HST applies to a range of items including new homes, commercial real property, cars, hotel rooms, clothing, shoes, soft drinks, candy, and potato chips. However, this tax also applies to services such as advertising, legal or accounting services, and vehicle repairs.
Which Purchases Are Not Taxed?
Conversely, basic groceries, farm livestock, fish, feminine hygiene products, and devices such as hearing aids are zero-rated, meaning no HST is applied. Finally, a range of products and services are exempt from tax, and this includes long-term accommodation rentals, child care services, health and dental services, music lessons, and insurance policies.
Who Charges HST?
In Newfoundland and Labrador, small business owners who sell taxable products or services must register for an HST account, collect HST on their sales, and remit HST to the Canada Revenue Agency. However, if you are a small supplier, you are exempt from this requirement.
As of 2016, small suppliers are businesses that have sold less than $30,000 in taxable goods or services over the last four quarters combined. If you qualify as a small supplier, you don’t have to register for an HST account, but you may voluntarily register if you like.
What Are the Benefits of Voluntary HST Registration?
If you voluntarily register for a GST/HST account, you must assess HST on your sales and remit payments to the CRA. However, you may also claim a tax credit for any GST/HST you pay on purchases for your business.
For example, imagine you pay an accountant to help you with your business. The accountant charges you $500 for the services, and the HST on the invoice is $75. If you do not have a GST/HST account, you cannot claim a credit on the $75 HST. However, if you are a GST/HST registrant, you can claim an input tax credit. Ultimately, as a small supplier, you must decide if the input credits are worth the extra work of charging and remitting HST.
How Do You Register for an HST Account?
Whether you are required to register or decide to register voluntarily, you must register with the CRA. This agency collects HST and distributes the provincial portion back to Newfoundland and Labrador or to whichever province is applicable in your situation. You may register online using Business Registration Online or complete Form RC1A Business Number – GST/HST Program Account Information, and mail or fax it to the CRA. To register for a GST/HST account, you must have a business number, which you can obtain online or by mailing in Form RC1 Request for a Business Number.
Once you are registered, you will receive instructions on how to remit HST and how often you need to make remittances. This process may also be done online or through the post.