Understanding HST Taxation and Exemptions in Canada’s Provinces

In Canada, nearly all purchases and imports are subject to taxation. The two primary types of taxes are the general sales tax (GST) and the provincial sales tax (PST), which are combined to create the harmonized sales tax (HST). If you reside in a province that charges HST exemptions, you may be required to remit this tax to the federal government.

At present, five provinces in Canada, including Ontario, Nova Scotia, Newfoundland and Labrador, Prince Edward Island, and New Brunswick, charge HST. In 2010, Ontario established a 13% HST rate, composed of a 5% GST and an 8% PST.

While most products and services are subject to HST in Ontario, there are some exemptions. The Canada Revenue Agency (CRA) divides goods and services into three categories: those that are tax-deductible, those that are zero-rated, and those that are taxable. A product or service must be taxable at a 13% rate and be eligible for tax credits (Input Tax Credits) to be subject to taxation.

Which items are exempt from HST in Ontario? What should you do if you are unsure about how much HST to charge or whether you are paying the correct amount of this tax?

HST Exemptions

Navigating HST Payments and Tax Credits in Canada

When it comes to the Harmonized Sales Tax (HST) in Canada, it’s important to know who bears the responsibility for paying it. As a customer, you are required to pay HST at the time of purchase for all products and services subject to the tax. Once the company files its HST return, it then remits the collected HST to the Canada Revenue Agency (CRA).

In compliance with Canadian law, businesses that generate more than $30,000 in revenue in a calendar quarter or eight consecutive quarters in Canada may need to obtain an HST number. Upon receiving this number, businesses must immediately charge and remit the tax. However, if your business falls below this revenue threshold, known as the small business supplier threshold, you are exempt from collecting and remitting HST.

Obtaining an HST number is optional for business owners whose revenue remains below the specified threshold. This option proves beneficial, particularly for companies offering zero-rated products. Additionally, businesses can claim HST tax credits, also known as Input Tax Credits (ITCs), on goods subject to HST. By claiming ITCs on both commercial purchases and operating expenses, you can minimize your tax bill effectively.


Demystifying HST Exemptions: Eligibility and Implications

The concept of “HST Exempt” pertains to goods and services that are not subject to the Harmonized Sales Tax (HST). When a business makes purchases falling under the HST exemption, it is not responsible for paying HST on those transactions. Consequently, the business does not collect HST and is not required to remit it.

It is important to note that since the business did not pay any HST, no input tax credit can be claimed for the HST that would have otherwise been eligible for reimbursement.

There is a wide range of products and services in Ontario that qualify for exemption from the HST. It is worth taking a moment to review the list provided below. It is generally not necessary for a business exclusively dealing in HST-exempt products and services to register for an HST number. However, financial institutions in Canada are an exception to this rule and are required to register for an HST number regardless of their product or service offerings.


Exemptions from HST in Ontario: Examples of Untaxed Goods and Services

In Ontario, the Canada Revenue Agency (CRA) outlines the specific goods and services that are exempt from the Harmonized Sales Tax (HST). While the list extends beyond the examples provided, here are some notable items and services that do not incur HST:

  1. Sale of an individual’s primary residence when it is their last time selling.
  2. Long-term residential rentals exceeding one month in duration.
  3. Fees associated with residential condominiums.
  4. Health-related and medical services provided by licensed physicians and dentists.
  5. Prescription drugs prescribed by a physician.
  6. Child care and daycare services for children under 14, supervised for less than 24 hours a day.
  7. Domestic ferry services.
  8. Legal assistance services.
  9. Various education services, including vocational schools offering trade or job certificates.
  10. Tutoring services aligned with school curriculum.
  11. Musical lessons and teachings.
  12. Tax-exempt services offered by banking institutions, such as lending and account maintenance.
  13. Insurance policies issued by insurance companies or agents.
  14. Properties owned or rented by public institutions and charities.
  15. Goods and services provided by government entities, nonprofits, and municipalities, including transportation and essential household services like water.

These examples highlight some of the goods and services that are not subject to HST in Ontario. It is important to consult the CRA guidelines for a comprehensive understanding of HST exemptions.


Forms for HST Exemptions and Rebates

When it comes to HST exemptions, indicating whether an item or service is exempt or zero-rated can typically be done through lines 90 and 91 of your HST return. In most cases, separate forms are not required for goods and services that are exempt from HST.

However, there are situations where specific forms are necessary. If you are acquiring a business or part of a business and choose not to pay HST on supplies obtained from that business, you will need to file Form GST44 for GST exemptions. This can simplify matters for businesses related to yours by not charging them HST.

For reporting the sale of certain items eligible for point-of-sale rebates in Ontario, specific tax forms are required. Some of these forms include:

  1. Rebate for Newspapers at Points of Sale (Form GI-060)
  2. Food and beverage rebates at the point of sale (Form GI-064)
  3. Rebate on books at the point of sale (Form GI-065)
  4. Rebate for children’s goods at the point of sale (Form GI-063)

In cases where there are no specific rebate forms available, Form GST 189, Application for Receipt of GST/HST, is used to request rebates.

These forms ensure proper documentation and facilitate the process of claiming exemptions and rebates related to HST.

HST Exemptions

Accurately Charging HST in Ontario: Ensuring Compliance and Building Trust

As a small business owner in Ontario, it is crucial to charge your customers the Harmonized Sales Tax (HST) accurately for eligible products while avoiding HST charges on exempt items. This responsibility plays a vital role in maintaining your business’s reputation and mitigating the risk of penalties and fines.

By diligently adhering to the correct taxation guidelines, you demonstrate your commitment to compliance and build trust with your customers. Charging HST on exempt items can not only tarnish your reputation but also lead to legal consequences. Therefore, it is essential to have a thorough understanding of HST regulations to ensure your business operates within the boundaries of the law.

By accurately charging HST, you not only fulfill your obligations as a business owner but also maintain transparency and integrity in your financial transactions. This commitment to compliance fosters customer confidence, enhances your business’s reputation, and helps you avoid potential legal complications.