HST and GST in Canada: What Your Business Actually Needs to Know

1. What GST/HST actually is

Two names. One tax. GST stands for Goods and Services Tax — the 5% federal tax on most things sold in Canada. HST stands for Harmonized Sales Tax, and it's what happens when a province rolls its own sales tax into the federal one so there's just a single rate. The CRA calls the whole system "GST/HST" because it's all run under one set of rules.

In Ontario, the HST rate is 13% — that's 5% federal plus 8% provincial. The four Atlantic provinces (New Brunswick, Nova Scotia, PEI, and Newfoundland and Labrador) charge 15%. And then there are provinces that never harmonized at all. BC, Saskatchewan, and Manitoba each run their own separate provincial sales tax on top of the 5% GST. Alberta and the territories? No provincial sales tax. Just the 5%.

For the rest of this guide, we'll say "HST" when we're talking about Ontario specifically and "GST/HST" when the rule applies everywhere. The mechanics are the same in every province — registration, input tax credits, filing, Quick Method, recordkeeping. Only the rate changes.

2. Who has to register

Here's the number that matters: $30,000. That's the CRA's "small supplier" threshold. If your worldwide taxable revenue hits $30,000 in a single calendar quarter — or over any four consecutive quarters — you have to register for GST/HST. Below that, it's optional. Above it, it's mandatory.

The $30,000 threshold, in plain terms

"Taxable revenue" means gross revenue from taxable and zero-rated sales worldwide. Not profit. Not net. Not just Canadian sales. Exempt stuff like residential rent and most health services doesn't count toward the $30,000.

Once you cross that line, you've got 29 days to register with the CRA and start charging tax. That clock starts the day you go over.

Mandatory registration from day one

• Taxi, limo, and ride-share drivers. You register from your first fare. Doesn't matter if you made $50 or $50,000. Uber and Lyft drivers are in this bucket too.
• Non-residents selling to Canadians. Digital economy rules since 2021 capture non-resident vendors of digital products, short-term accommodation platforms, and fulfillment warehouses.
• Voluntary early registration. You can register before you hit $30,000. This makes sense when you've got big startup costs and want to claim back the HST you're paying on them.

Should you register early?

It depends on who your customers are. If you sell to other businesses, the 13% HST on your invoices is invisible to them — they claim it back as an ITC. So registering early is usually a good move. But if you sell directly to consumers, that 13% is a real price increase they feel. The math changes.

The tradeoff is simple: you get to claim ITCs on your startup costs, but you take on the work of filing returns. For most B2B businesses with real startup expenses, it's worth it.

3. Which rate do you charge?

Same province as your customer? Easy. Charge your province's rate. But when your customer is in a different province, the CRA's "place-of-supply" rules decide which rate goes on the invoice. And yes, people get this wrong all the time.

Goods: the delivery address wins

For physical goods, the rate depends on where you ship them. You're in Ontario and shipping to Nova Scotia? You charge 15%, not 13%. Shipping to Alberta? That's 5% GST. Where you sit doesn't matter. Where the package lands does.

Services: it gets messy

Services are trickier. The general rule looks at your customer's business address. If they're in Ontario, you charge 13%. If they're in BC, you charge 5% GST (BC runs its own PST separately).

There are exceptions. Services tied to real property get taxed where the property sits. Services performed in person get taxed where the person is standing when the work starts.

Digital products and software

Software subscriptions, licences, and other intangibles follow the customer's billing address for business sales. Consumer sales of digital products and streaming services fall under the digital economy rules that kicked in July 2021 — non-resident platforms selling to Canadian consumers generally have to register and charge tax now.

4. Zero-rated vs exempt: why the difference matters

Not everything gets taxed at 13%. The GST/HST system splits sales into three buckets: taxable, zero-rated, and exempt. From your customer's view, zero-rated and exempt look the same — no tax on the bill. But from your side? They're completely different. The category you fall into decides whether you can claim ITCs on your costs.

Taxable supplies

This is the default. Most goods and services in Canada are taxable. You charge the rate, collect the tax, subtract your ITCs, and send the difference to CRA. Retail, construction, consulting, restaurants, B2B work — nearly everything sits here.

Zero-rated supplies (0% tax, but still in the system)

• Basic groceries. Bread, milk, meat, vegetables, fruit, cereal. But not snack foods, prepared meals, pop, or restaurant meals — those are taxable.
• Prescription drugs. Anything requiring a prescription. Over-the-counter stuff is generally taxable.
• Medical devices. CRA keeps a specific list — wheelchairs, hearing aids, orthotic devices, insulin pumps.
• Exports. Goods shipped out of Canada and services for non-resident clients consumed outside the country.
• Agricultural and fishing products. Sold in their primary form.

Here's the key: zero-rated sellers still register, still file returns, and still claim full ITCs on their business costs. They just charge 0% on their sales. So they get their HST back on everything they buy for the business.

Exempt supplies (outside the tax entirely)

• Long-term residential rent. One month or longer to the same tenant. Short-term stays (under a month) are taxable.
• Health, medical, and dental services. Licensed practitioners in their professional capacity. Cosmetic procedures are taxable though.
• Most financial services. Lending, deposit-taking, insurance, securities. Investment advice and management fees have their own carve-outs.
• Education and tutoring. When provided by a school, college, or for a qualifying credit.
• Childcare. Primarily for children under 14.
• Legal aid. Under a provincial legal aid plan.

Exempt sellers can't charge tax and can't claim ITCs. That means the HST buried in their rent, utilities, and equipment is just a cost they absorb. A dental office pays 13% on every piece of equipment it buys and never gets a dollar of it back. That's the real-world bite of being exempt.

5. How input tax credits (ITCs) work

This is the part most business owners actually care about. You collect HST on what you sell. You claim back the HST on what you buy for the business. You send CRA the difference. And if you paid more HST on purchases than you collected on sales? CRA sends you a refund.

What qualifies

The purchase has to be for your business. CRA calls it "commercial activity" — that means making taxable or zero-rated sales. Personal purchases don't count, even if the business card paid for them. Exempt activities don't support ITCs either.

Mixed-use purchases get pro-rated. Your vehicle is 70% business, 30% personal? You claim 70% of the HST you paid on it.

Documentation thresholds

The number one reason CRA kills an ITC claim? Missing documentation. Specifically, no supplier GST/HST number on a receipt over $30. The second most common reason is claiming an ITC from a supplier who wasn't actually registered when they invoiced you. CRA's GST/HST registry is public — you can check any supplier in about a minute. Worth doing before claiming a big ITC.

Time limits

You've got four years to claim a missed ITC. That clock starts from the end of the period the expense fell in. Bigger businesses (over $6 million in annual revenue) only get two years. So a missed ITC isn't lost forever — but you do need to catch it before the window closes.

Honestly? The cleanest way to avoid missed ITCs is to track them per transaction in your books each month. Hunting for receipts at filing time is how things fall through the cracks. For how to set that up, see bookkeeping.

6. How often do you file?

CRA picks your filing frequency when you register, based on your annual revenue. Most small businesses in Ontario file once a year. But you can choose to file more often — and sometimes you should, especially if CRA owes you money because your ITCs are bigger than the tax you collected.

One catch for annual filers: if your net tax last year was over $3,000, you owe quarterly installments even though you only file once. They're due one month after each fiscal quarter ends. Your annual return reconciles the installments against what you actually owe.

Regular method vs Quick Method

The regular method is straightforward. Collect HST, claim ITCs on your purchases, send CRA the difference. Most businesses use this.

The Quick Method is a shortcut. You still collect 13% HST on your Ontario sales, but instead of tracking every ITC, you remit a lower flat percentage and keep the rest. For Ontario service businesses, that rate is usually 8.8%. For goods resellers, it's 4.4%. You come out ahead when your actual ITCs would've been less than the spread between 13% collected and your Quick Method rate.

It's available to most small businesses under $400,000 in annual taxable sales. But not everyone.

Who can't use the Quick Method

• Legal, accounting, bookkeeping, and tax prep firms (yes, including us)
• Financial consulting and actuarial services
• Charities and public institutions (they have their own method)
• Any business over $400,000 in annual taxable sales

You elect in on form GST74 before the reporting period starts. Once you're in, you stay for at least a full year. There's also a bonus 1% credit on your first $30,000 of eligible sales each year.

The decision is pure math. Compare what you'd save under Quick Method versus what you'd get back in ITCs under the regular method. Pick whichever number is bigger. For help with the ongoing filing, see HST filing.

7. The mistakes we see over and over

Same errors, different clients. We're not talking about obscure rules here. These are simple things that don't get checked. And they're the ones CRA catches most often.

Missing ITCs (and over-claiming them)

Under-claiming happens when you scramble to pull together receipts at filing time instead of tracking ITCs per transaction in your books. Over-claiming happens when personal expenses get coded as business, or when you claim tax on purchases that were zero-rated or exempt and never actually had HST on them.

That CRA desk review letter about over-claimed ITCs? It's one of the most common pieces of mail in the system.

Quick Method election gone wrong

We've seen businesses file Quick Method returns without ever submitting the GST74 election form. CRA reassesses those back to the regular method and claws back every dollar of the "savings." The opposite also happens — a business picks Quick Method for simplicity and later finds out the regular method would've been cheaper because their ITCs were higher than the Quick Method spread.

Revisit the math whenever your business mix changes.

Wrong rate on out-of-province sales

The most common place-of-supply mistake: Ontario businesses charging 13% to Atlantic customers who should've been charged 15%. Or treating US sales as taxable instead of zero-rated exports. Both are easy to catch if you track the ship-to address in your order ledger.

ITCs from unregistered suppliers

Every ITC needs the supplier to have been registered when they invoiced you. If they weren't — because they never registered, or their registration lapsed — your ITC claim is invalid even if they charged you HST. Check the CRA's public registry before claiming anything large. Takes about a minute.

Late filings and late registrations

One day late on a return triggers penalties and interest. Registering late triggers retroactive assessment back to the day you crossed the threshold. Neither gets better with time. The arrears just compound.

What triggers a CRA desk review or full audit? Refund claims that don't match your sales history. Sudden shifts in your ITC ratio. A gap between your T2 revenue and your HST return revenue. Round numbers that look like guesses. For what happens once CRA opens a file, see CRA audit support.

8. Behind on HST? Here's what you're dealing with

GST/HST debt is one of the worst kinds of CRA debt. The tax you collected (or should have collected) from customers is treated as trust money — you were holding it for the government. CRA takes that seriously. Their enforcement powers on trust amounts are broader than on regular corporate tax, and the interest compounds faster.

Retroactive registration

If you should've registered and didn't, CRA doesn't just register you going forward. They go back to the day you crossed the $30,000 threshold and assess HST on every sale since then. You either try to collect that tax from your old customers (almost nobody does) or you absorb it.

The silver lining: ITCs from that same period can be applied against the liability once you rebuild the documentation. That usually softens the hit. But it rarely eliminates it.

Penalties and interest

Failure-to-file penalties stack on each missed return. Interest runs from the original due date at CRA's prescribed rate, compounded daily. Miss multiple returns in four years? The penalties get bigger. And unpaid tax accrues its own interest on top of the filing penalties.

Director liability (this is the scary one)

Section 323 of the Excise Tax Act makes directors personally liable for unremitted GST/HST. Not the corporation. You, personally. CRA can come after you directly when they can't collect from the company.

Resigning doesn't wipe it out either. CRA has two years from your resignation date to issue an assessment for amounts that built up while you were a director. There's technically a "due diligence" defence, but it's narrow and hard to win.

How catch-up works

We see these files regularly. The process is the same every time: rebuild the books for each missed period from bank and credit card statements, figure out what HST should have been charged and what ITCs can be claimed, file each missed return with CRA in order, then negotiate a payment arrangement on whatever's left.

If CRA hasn't contacted you yet, the Voluntary Disclosures Program (VDP) might apply. A successful VDP application usually waives the penalties and part of the interest. That alone can save thousands. For rebuilding books that aren't ready to file from yet, see catch-up bookkeeping.

9. How HST connects to your corporate tax

HST and corporate tax are separate systems. But CRA compares them. The revenue on your T2 return should match the revenue on your HST returns for the same period. When those numbers don't line up, CRA sends a letter asking why. It's one of the easier flags to trip.

Revenue reconciliation

Line 101 on your HST return (total sales) should match gross revenue on your T2 income statement. Timing differences are normal — a December invoice might land in a January HST period but a December T2 year-end. But the full-year totals need to agree once you adjust for timing. If they don't, you need to explain why with your books.

Intercompany charges and shareholder benefits

Charges between related corporations carry HST just like any other sale. Management fees, rent, shared-service costs — all invoiced with HST unless you've filed a specific election. The section 156 election can eliminate HST on qualifying intercompany transactions, but every party has to be registered and the election has to be on file.

Shareholder benefits are another spot to watch. Personal use of company assets, below-market loans, personal expenses run through the corporation — some of these carry HST consequences too.

HST in your T2 expense deductions

Business expenses on your T2 get recorded net of recoverable HST. You claim the ITC on your HST return, not as a T2 deduction. Only the portion you can't recover — because the expense was partially personal or tied to exempt activity — goes into the T2 expense.

Getting this wrong creates a small error that carries through every financial statement and tax return after it. For the T2 side of this, see corporate tax.

10. Should you do your own HST or hire someone?

Three options. Do it yourself in software. Have a bookkeeper handle it. Or hand the whole thing to an accounting firm. None of them is the right answer for everyone.

DIY in accounting software

• QuickBooks Online. Strong Canadian HST support. Tracks tax on every transaction, generates HST worksheets, and exports in CRA-compatible format. Most of our clients use QBO.
• Xero. Solid HST support. Smaller market share in Ontario than QBO, but a good product.
• Wave. Canadian-built and free for core bookkeeping. HST tracking included. Good for side businesses and sole proprietors with low transaction volume.
• Sage 50 Canadian Edition. Desktop-based, been around for decades. More common with established businesses that have legacy data in it.
• Spreadsheets. Still used. Works when you've got a handful of transactions per month. Falls apart once volume grows, because you have to rebuild your ITC documentation trail from scratch every time CRA asks.

Bookkeeper-managed

A bookkeeper catches what software can't: wrong tax codes on a whole class of transactions, missing ITCs because a receipt got posted without tax, intercompany charges that should've had HST, personal stuff coded as business. Plus they file the return each period, so the deadline stops being your problem.

Full outsource to an accounting firm

Same software under the hood, but with year-end reconciliation, Quick Method vs regular method review, and corporate tax integration built in. The real value is catching things an automated system misses and having clean records ready if CRA ever asks questions.

Honest tradeoffs

DIY is cheapest and gives you direct control. It works when transactions are low, the rules are simple, and you're comfortable reading CRA guidance. It stops working when you grow past a few dozen monthly transactions or start selling across provinces.

Hiring someone costs more but takes the compliance work off your plate. It makes sense as soon as your time spent on HST is worth more than the fee, or when the cost of one HST error would outweigh a full year of professional help.

11. What records does CRA expect you to keep?

Six years. That's how long CRA wants you to hold onto your records — from the end of the tax year they relate to. Electronic records are fine as long as they're readable, complete, and backed up. Here's what that actually looks like:

• Sales records. Invoices, POS tapes, cash register summaries, e-commerce reports. They need to show the date, customer, description, amount, and tax charged.
• Purchase records. Supplier invoices and receipts that meet the ITC documentation rules — including the supplier's GST/HST number on anything over $30.
• Bank and credit card statements. Every business account. These are the first thing CRA asks for in any review.
• HST return worksheets. Each return should have a worksheet showing how you calculated line 101 (sales), line 105 (tax collected), and line 108 (ITCs).
• CRA election forms. GST74 (Quick Method), GST20 (changing your reporting period), GST44 (sale of a business), and any CRA correspondence on your account.
• Capital asset records. Purchase, lease, and disposal docs. Capital assets have their own ITC and change-in-use rules.

"Six years" means from the end of your fiscal year, not from the receipt date. A 2020 invoice tied to a December 31, 2020 year-end can't be tossed before January 1, 2027. Honestly, we tell clients to keep things longer than the minimum. Storage is cheap. Losing a document you need for a CRA review is not.

And the books that support your HST return are usually the same ones supporting your T2 and payroll returns. So the six-year rule really sets the retention policy for everything.