Sometimes, it can seem like there’s so much tax lingo it’s hard to keep up – not to mention abbreviations. Taking some time to zoom out and cover the basics can help understand Canada’s complex tax system. So, what exactly is GST, HST, and PST, and how do these differ? These three acronyms represent different types of taxes that are applied to goods and services in Canada.
In this guide, we’ll break down the differences between GST, HST, and PST so that you can better understand how they affect your wallet.
- In a general sense, sales taxes are applied to most non-essential goods and services, with some minor differences by province. GST (or Goods and Services Tax) is a federal tax and whether kept separate or harmonized, would be applied to the same goods and services across the country. The current rate of GST is 5%, and it applies to everyday items like clothing, electronics, and restaurant meals.
- HST, or Harmonized Sales Tax, is a combination of the federal GST and a provincial sales tax (PST). Five provinces in Canada have implemented HST, and the rate varies by province. This tax applies to everyday items like home renovations, car repairs, and professional services like legal or accounting fees.
- PST, or Provincial Sales Tax, is a tax that’s applied to goods and services sold within a specific province. Alberta is the only province that doesn’t charge PST, and the rate overall, will vary by province. This tax applies to everyday items like gasoline, alcohol, and tobacco products.
What is GST tax in Canada?
Imagine this. It’s a typical Saturday afternoon and you’re out shopping for a new outfit. You find a cute dress that costs $100. But wait, there’s more! When you get to the cash register, the total comes out to $105. Why?
Because of GST – the Goods and Services Tax. It’s a federal tax that’s applied to most goods and services sold in Canada. The current rate of GST is 5%, so if you buy something for $100, you’ll pay an extra $5 in GST.
What is HST tax?
But what about HST – the Harmonized Sales Tax? It’s a combination of the federal GST and a provincial sales tax (PST). Five provinces in Canada have implemented HST: Ontario, New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador. The HST rate varies by province, but it ranges from 13% in Ontario to 15% in Newfoundland and Labrador. It’s like a tag team between the federal and provincial governments – they’re both getting a piece of that pie!
Let’s say you live in Ontario and you’re planning a home renovation. You hire a contractor who charges you $10,000 for their services. But when you get the bill, it’s actually $11,300. Why? Because of HST. The federal government takes 5% (or $500) and the provincial government takes 8% (or $800). That’s a total of 13% (or $1,300) in taxes.
What is PST tax?
Finally, we have PST – the Provincial Sales Tax. It’s a tax that’s applied to goods and services sold within a specific province. Six provinces in Canada have implemented PST: British Columbia, Saskatchewan, Manitoba, Quebec, Yukon, and Northwest Territories. The PST rate varies by province, but it ranges from 5% in Manitoba to 7% in British Columbia. It’s like the provinces are saying, “Hey, we want a piece of that pie too!”
Now, let’s assume you live in British Columbia and you need a new computer. A purchase of a telecommunication service applies a 7% PST rate. So, if your computer is $1,000, with tax added, your total would be $1,070. Don’t forget there would also be GST of 5% or $50, added to the cost of this purchase…. it would be listed separately on the receipt
Why is it important to understand the difference between GST, HST and PST taxes?
Understanding how these taxes work can help you make informed decisions when it comes to purchasing goods and services. Plus, if you know which products and services are exempt from these taxes (like basic groceries, prescription drugs, and medical devices), you can save some serious dough.
Navigating the world of taxes can be confusing – but it doesn’t have to be once you understand basic tax concepts. So next time you’re out shopping or planning a home renovation, remember to factor in those sales taxes – because as they say, nothing is certain except death and taxes.
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