Canada’s tax system is designed to be progressive, meaning those who earn more in income pay more in tax as a fundamental principle. As well as maintaining rising tax brackets, the federal government also issues the GST/HST credit to offset sales tax expenses for low-earning taxpayers. Applying and qualifying for this credit is integrated into the tax return.
GST And HST
“The Goods and Services tax is a federal sales tax of 5 percent levied on most transactions in Canada, such as retail purchases, real estate sales and personal services,” says Christopher Liddiard, certified financial planner with Investors Group in London, Ontario. “The GST applies across the country, and some provinces have incorporated the federal GST with provincial sales taxes, creating a harmonized sales tax that applies in those provinces.” New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island participate with the federal government using harmonized sales taxes. The remaining provinces and territories keep the GST separate from any provincial sales tax. The Canada Revenue Agency uses the term GST/HST to refer to all combinations of usage at the provincial level. The GST/HST is paid by consumers, then collected and remitted by businesses who are registered with the federal government.
The GST/HST Credit
As part of Canada’s progressive tax system, the government introduced the GST/HST tax credit to reimburse some or all of the federal portion of sales taxes to low-income households. The credit is paid quarterly for each tax year, in July, October, January and April, on or around the fifth day of those months. The amount of the credit is based on each family’s net income, plus the number of dependent children. The CRA does not consider the credit taxable income. Application for the GST/HST credit is done automatically through federal tax returns, though it can be claimed only by one spouse or other member of a household.
Eligibility For The Credit
To receive the GST/HST credit, you must be a resident of Canada as defined by the CRA for tax purposes. In addition, you must meet one of three additional criteria: you are at least 19; you are married or have a common-law partner; or you have one or more children with whom you live. New Canadian residents can apply for the GST/HST credit using form RC151 GST/HST Credit Application for Individuals Who Become Residents of Canada. Meeting these eligibility requirements does not assure you receive the credit. Your family’s income determines payment. If you apply for the GST/HST credit and your income is too high, the CRA will notify you. There is no penalty or repercussion for applying when you earn too much, and all applicants must re-apply (by filing a tax return) and re-qualify each year.
Applying Through Your Tax Return
To qualify for the GST/HST tax credit, you must file a return for the tax year prior to the credit payout period, even if you have no income. You are no longer required to specifically apply for the benefit as CRA determines eligibility by your annual tax return. If you receive the Canada Child Tax Benefit for your children, they are automatically registered for the GST/HST credit and will be accounted for in your household credit. If you separate from your spouse for a period of longer than 90 days, you may qualify for the GST/HST as a single person without affecting the household credit, though you must notify the CRA of this status change.
Determining Your GST/HST Credit
The CRA provides an online calculator with which you can estimate your GST/HST credit amount, as well as manual calculation charts. To use the calculator, you will need your estimate of your adjusted family net income and the number of registered children who reside with you.
References & Resources
- Canada Revenue Agency: GST/HST — General Information
- Canada Revenue Agency: GST/HST Credit — Application and Eligibility
- Canada Revenue Agency: RC4210 GST/HST Credit
- Christopher Liddiard, B.A.; Certified Financial Planner; Investors Group, London, Ontario