A Tax Guide for

Small Businesses
In Partnership with
Table of Contents

Chapter One 3
Introduction to taxes for small businesses

Chapter Two 5
A beginner’s guide to small business
deductions

Chapter Three 17
GST/HST basics for your business

Chapter Four 23
Registering CRA online accounts

Chapter Five 28
Filing your first GST/HST return

Chapter Six 33
Small business guide to Canadian sales
tax rates

The Takeaway 39
One
Introduction to taxes
for small businesses
 Welcome!
Maybe you’re a new entrepreneur just about ready to open your doors, or you’re
a seasoned business owner who wants to get a better handle on your taxes.
Whatever stage you’re at with your business, getting to know small business
taxes is essential. From the taxes you charge your clients and customers, to
what expenses you can deduct on your annual tax return, this guide will take you
through it all and help you avoid tax headaches.

Small business taxes are an essential

component to running your business, and
becoming familiar with taxation practices
can reduce the amount you owe each year.

1. Introduction to taxes for small businesses 4

Two
A beginner’s guide to
small business deductions
"I'll write it off as a business expense."

It’s so satisfying to say, but any entrepreneur knows the process behind this
phrase can be a bit complex. Although tax deductions can be an economical
way to run your small business to the best of its capacity, it can also be a hard
landscape to navigate––especially if you’ve only ever filed personal tax returns.

This chapter will break down the most common business expenses entrepreneurs
can claim, the way these expenses work, as well as some general dos and don’t of
tax write-offs.

What can be written off as a business expense?

In short, any expense that’s required for the purpose of running your business
can be deducted as a business expense. The opposite of a business expense is a
personal expense, which cannot be deducted.

Sounds simple, right? If it were, this chapter wouldn’t need to exist. There are
many caveats to small business accounting, and they can be difficult to navigate.
First, let’s go over concrete examples of typical small business deductions
available to Canadian entrepreneurs.

2. A beginner’s guide to small business deductions 6

 16 common business expenses
Being aware of the specific tax write-offs that
pertain to your business can help you plan and
remain organized. The below list is not exhaustive,
but contains some of the most common operating
expenses for entrepreneurs. The Government of
Canada has a long, albeit still not complete, list of
other costs you may encounter.

Bad debts
Bad debt refers to money you’re owed and haven’t been able to collect. This
usually means a service you provided for a client and invoiced for, but have not
been paid for, even with a considerable amount of time passed. For example, let’s
say you run a graphic design business and you designed a website for a client. If
the client never responds to your invoice or goes out of business before paying
your invoice, you may be able to claim it as a bad debt come tax season.

Total amount you can claim: You can claim the full amount of bad debt you
are owed. For example, if you are out $10,000, and a debt collection agency
was able to collect $3,000 on your behalf, you can claim $7,000.

Bills (i.e., telephone and utilities)

As a business owner, you can deduct the costs of certain bills like electricity,
water, telephone, and cable, if these expenses enable you to earn business
income. However, you must only deduct the percentage of the costs related to
running your business.

If you run your business from your home, you will have to calculate which
percentage of your utility bill is used in your home office, and what percentage of

Total amount you can claim: You can claim whatever percentage of your
bills you use for business operations. For example, if you pay $600 every
month towards bills you use to generate business income 30 per cent of the
time, you can expense 30 per cent of $600, or $180 monthly.

2. A beginner’s guide to small business deductions 7

 3

Business licenses and dues

If your line of work requires you to pay membership dues or similar fees, this
can be a potential tax deduction. This includes things like a membership in a
governing body or association, or even a publication subscription. However,
it doesn’t include recreational memberships (such as a gym or athletic club
membership).

Total amount you can claim: You can claim 100 per cent of business
licenses and dues provided they are used in the operation of your business.
If your license is only partially used for your business, you may only deduct
that percentage of the business license. For example, if you pay $2,000
per year in business licenses and regulatory fees, you can claim the entire
$2,000 as a business expense.

Capital costs
In the government’s eyes, items such as desks, chairs, and computers are
considered capital costs. Capital costs are one-time purchases that are integral
in rendering a service. Capital costs generally depreciate over the period of time
that you use them (for example, a 2-year-old laptop won’t retain the same value as
when you first bought it).

Capital costs can be factored into your small business deductions, but they must
be deducted over a period of several years and not all at once.

Total amount you can claim: You can claim 50 per cent of capital costs for
any given year. For example, if you spend $5,000 in a year on a computer
system, a desk, chair, printer, and a filing cabinet, you can claim $2,500 of
that as a business expense.

2. A beginner’s guide to small business deductions 8

 5

Charitable donations
In certain cases, you may be able to count a charitable donation as a business
expense. To be eligible, the donation must be made through your business
towards a registered Canadian charity.

Total amount you can claim: Generally, up to 75 per cent of charitable

donations are tax deductible. For example, if you donate $1,000 in a year on
behalf of your business, you can claim $750 as a business expense.

Delivery fees
If you ship packages and other mailable items as part of your business, you are
eligible to submit the costs associated with this as a tax deduction.

Total amount you can claim: You can deduct 100 per cent of any delivery
fees related to your business incurred in the past year. For example, if you
spend $1,500 in a fiscal year on delivery fees, you can claim the entire
$1,500 as a business expense.

2. A beginner’s guide to small business deductions 9

 7

Employee salaries
Certain employee expenses, such as employee salaries, employment insurance
premiums, and workers’ compensation, can be deducted. An exception to this
is your own salary, which cannot be deducted. All payroll deduction information,
including COVID wage subsidy information and a payroll calculator, can be found
on the CRA website.

Total amount you can claim: You can claim gross employee salaries, as
well as CPP or QPP contributions, EI premiums, workers’ compensation
amounts, and parental insurance plan premiums (in Quebec). For example,
if your gross employee salaries equate to $50,000 per fiscal year (this figure
includes all CPP contributions, EI premiums, and so forth), then you can
deduct the entire $50,000 as a business expense.

Insurance

You’re eligible to claim any insurance premiums you incur, as long as they pertain
to buildings or equipment you use in the operation of your business. You may
be eligible to claim home or auto insurance premiums. However, they must be
declared as part of your home expenses or motor vehicle expenses, respectively.
In most cases, life insurance premiums are not eligible for deduction.

Total amount you can claim: You can claim any paid insurance premiums
in full. For example, if you spend $1,500 per year in vehicle insurance and
$9,000 on property insurance, you can claim $10,500 as a business expense
provided you can show proof of payment (i.e. you can’t claim insurance that
has yet to be paid).

Interest on business loans

As a small business owner, you are able to deduct any loan interest you incur over
a period of time, provided the loan was borrowed for business purposes.

2. A beginner’s guide to small business deductions 10

 Total amount you can claim: 100 per cent of business loan interest as long
as it was borrowed to generate business income. For example, if you paid
$1,000 in interest in any loans, lines of credit, or credit cards in association
with your business, you can claim $1,000 as a business expense.

10

Motor vehicle expenses

Depending on the nature of your travel, you may be able to deduct some of
the costs associated with operating a motor vehicle on your taxes. However,
the amount you deduct depends on how often you use your motor vehicle for
business purposes.

Total amount you can claim: This depends on the amount of time you
spend using your motor vehicle for business use only, and whether or not
you own or lease your vehicle. For example, if you are using a leased car
for business 40 per cent of the time, you can deduct 40 per cent of your
monthly lease payment. So if you pay $10,000 per year in lease payments,
you can claim $4,000 as a business expense.

11

Office expenses
Office expenses are one of the most common types of business expenses and
include small items such as stationary and stamps. However, it does not include
larger-scale items such as chairs or desks or even computers. As mentioned
previously, those are capital costs.

Total amount you can claim: You can claim 100 per cent of the cost of your
office supplies, provided they are necessary for your work and solely used
for business purposes. For example, if you spend $2,500 a year on office
supplies such as paper, pens, file folders, stamps, etc., you can claim $2,500
as a business expense.

2. A beginner’s guide to small business deductions 11

 12

Professional fees
If you seek counsel related to the operation of your business, you can deduct the
fees paid for these services from your taxes. This can include individuals such as
accountants, lawyers, and other professional consultants.

Total amount you can claim: You can claim 100 per cent of professional
fees related to your business operations. For example, if you retain the
services of an accountant which costs $1,500 per year, you can claim the
entire $1,500 as a business expense.

13

Rent
A percentage of the amount you pay in rent for the property where you conduct
business can be put towards your tax deductions. This is true whether you rent
a separate office space or conduct business within your personal living space.
However, how you go about claiming this will change depending on which
category you fall into.

Total amount you can claim: This directly relates to the percentage of your
home used to run your business. For example, if you use 30 per cent of
your home to run your business, you can deduct 30 per cent of your rent on
your taxes. For example, if you work out of your home and your rent costs
$1,000 per month, and you use 30 per cent of your home for work, you can
claim $300 per month (or $3,600 per annum) as a business expense. If,
however, you rent a space and the entirety of the space is used for business
purposes, you can deduct all rent as a business expense.

14

Sales tax
Sales tax appears as GST and PST in Alberta, British Columbia, Manitoba, and
the territories, as GST and QST in Quebec, and as HST in Ontario, Prince Edward
Island, Newfoundland and Labrador, Nova Scotia, and New Brunswick. Certain
businesses must charge sales tax on their services. However, as a small business
owner, you are eligible to receive rebates on the sales tax that you pay through
something called an input tax credit (ITC).

2. A beginner’s guide to small business deductions 12

 When you file your small business taxes, the CRA will determine whether or not
the amount of sales tax you have collected is lesser than or greater than your ITCs.
If you carry a negative balance, the government will provide you with a sales tax
refund. We’ll go into more detail about this in the coming chapters.

Total amount you can claim: You can put 100 per cent of the small business
taxes you claim towards your ITC. For example, if you collected $13,000 in
business taxes for the fiscal year, you can put $13,000 towards your ITC. If
you surpass your ITC for the year, you will receive a refund.

15

Start-up costs
When you create a business, as entrepreneurs know all too well, miscellaneous
fees can add up quickly. These costs most commonly include the purchase of
inventory and equipment vital to your business operations.

You can claim these expenses, but only if they’re incurred after your business’s
start date. The Government of Canada specifies you must be precise about your
business’ start date to be eligible for tax refunds.

Total amount you can claim: You’re permitted to claim up to $5,000 in start-
up costs.

16

Professional fees

If you partake in travel related to your small business, you may deduct this
expense. This includes transportation, hotel accommodations, as well as meals.
A 50 per cent limit will apply to all food and beverage purchases made while
travelling.

Total amount you can claim: 100 per cent of travel expenses, 50 per cent
of food and beverage expenses. For example, if you take a business trip and
spend $1,000 on hotel accommodations and $400 on meals, you can claim
$1,200 as business expenses ($1,000 for the hotel and $200 for meals).

2. A beginner’s guide to small business deductions 13

 Business expenses not eligible for tax write-offs
Although it would be great if small business deductions were all-encompassing,
there are some common expenses that are not eligible for tax write-offs. These
include:

Your own labour as it applies to your business.

Repairs on any items considered capital costs.

Any repairs for non-capital costs that have already been reimbursed by your
insurance company.

Costs associated with a secondary office location (only primary office

location expenses can be deducted).

Portions of any bills that are used for personal matters (even if a portion of
those bills are used for business matters).

Any business expenses if your business is not profitable over a long period of
time.

Interest that you incur on personal loans borrowed to pay overdue income
taxes.

2. A beginner’s guide to small business deductions 14

 How to submit business expenses during tax season
Once you narrow down the type of deductions you are eligible for, it’s useful
to know how to go about submitting them. To claim a small business expense,
you need to have original copies of all of your invoices. Although it is possible
to process your taxes yourself, it’s best to consult a professional, such as an
accountant.

Tax write-offs work by lowering the amount of your taxable income, which in turn,
lowers the amount of tax you owe the government. This is because the Canadian
tax system works progressively, which means taxpayers pay an amount relative to
their earnings.

Tax write-offs for small businesses: Dos and don’ts

Keep pristine records of everything you

spend. In the case of an audit, you will
need to provide a reliable paper trail.

Trust a chartered accountant with the

filing of your taxes (bonus: the cost of
an accountant is in itself a business
expense!).
3
Be aware that you may only be able
to deduct a portion of your expenses.
Take internet bills, for example. While
you can deduct the portion that helps
you contact clients, you cannot deduct
the portion that fuels your latest Netflix
binge.

2. A beginner’s guide to small business deductions 15

 1 2

Trash your receipts, even if you have Rely on estimates when submitting
already filed your taxes. Receipts expenses.
should be kept for a minimum of six
years in case of an audit.
3

Try to do it all yourself. Don’t hesitate

to enlist the help of a professional
accountant.

Feel limited if the CRA does not list a

certain expense on their website. The
CRA’s definition of a business expense
is “any reasonable current expense you
paid or will have to pay to earn business
income,” so when in doubt, check with
your accountant or the CRA directly to
see if your expense may be eligible.

Although the process of taking care of your taxes as a small business owner can
be daunting, there’s help available. Once you have a handle on what you can and
can’t write off on your income tax returns, now we need to look at GST/HST.

Thousands of entrepreneurs have launched their business with Ownr.

Register Your Business

2. A beginner’s guide to small business deductions 16

Three
GST/HST basics
for your business
 Now that you have a clearer understanding of business finances, accounting,
and bookkeeping, it’s time to add an extra skill to your growing list: collecting and
remitting sales taxes.

Once your sales ramp up, you may need to register for, collect, and remit the
federal goods and services tax (GST) or, in some provinces, the harmonized sales
tax (HST). Don’t worry though, we outlined it all for you below!

Understanding GST and HST registration requirements can be confusing. They

can differ based on where you’re located, how much––and what––-you’re selling,
and where your customers are located.

Regardless if you charge taxes or not, you

will have to remit them to the government,
so it’s best to get to know taxation rates.

3. GST/HST basics for your business 18

 GST vs. HST
The GST is the federal tax most businesses selling goods and services in Canada
need to collect from their customers. The GST rate has been 5 per cent since
January 1, 2008.

Some provinces also combine sales taxes with the GST to create the harmonized
sales tax, or HST. This means, depending on your location, you may need to
charge HST instead of GST.

Do you need to register?

Your business must register for a GST/HST account and charge GST/HST if you
answer “yes” to two questions:

1 2

Does my business sell taxable supplies Is my business generating over $30,000

in Canada? and therefore not a small supplier?

What are taxable supplies?

Most goods and services in Canada are taxable supplies. This includes everything
from car repairs, hotel accommodations, clothing and shoes, and legal and
accounting services. Most of these items have the full GST rate of 5 per cent
applied to them.

Some goods and services are categorized as “zero-rated” supplies; this means
they’re taxable at the rate of 0%. Zero-rated supplies include basic groceries,
prescription drugs, and some goods and services sold to customers outside
Canada. Still, other supplies are non-taxable, like daycare services and residential
rent.

If your business sells taxable supplies in Canada (at the rate of either 5 per cent or
0 per cent), you must register for the GST/HST, unless you’re a small supplier.

3. GST/HST basics for your business 19

 What is a small supplier?
Being categorized as a small supplier depends on how much money your
business makes. If your revenue from worldwide taxable supplies is equal to or
less than $30,000 in both a calendar quarter and over the last year (the last four
consecutive calendar quarters), your business is a small supplier.

If you’re a small supplier, for the most part you don’t have to register for the GST or
HST.

Here’s how to calculate small supplier status:

For the end of each If the total is more than You’re also required to
calendar quarter (March $30,000, your business is register if your taxable
31, June 30, September not a small supplier and sales are more than
30, and December 31, must register to collect $30,000 in any single
assuming December 31 GST or HST. calendar quarter.
is your fiscal year end),
total up your taxable sales
for the four most recent
calendar quarters (the
last 12 months).

3. GST/HST basics for your business 20

 Charging GST, HST, or GST and provincial sales tax (PST)
If you have to register, how do you know what taxes to collect? Depending on
where you live, you may need to charge GST, HST, or GST and provincial sales tax
(PST).

Ontario, Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland, and
Labrador all have combined their provincial sales taxes with the federal GST to
create their harmonized sales tax (HST).

In British Columbia, Saskatchewan, Quebec, and Manitoba, PST is separate from

GST. So, if you operate in one of those provinces, your business may need to
charge, collect, and remit both PST and GST using two different sets of forms.
(You can find more information about the rates in your province here.)

Alberta and the three territories (Yukon, Northwest Territories, and Nunavut) don’t
have a PST, meaning your business only has to charge GST.

3. GST/HST basics for your business 21

 Getting registered as a tax collector
If you think this all sounds complex, you’re right. And, in addition to the general
rules outlined here, there are other details that might be important to your
business, such as determining if the types of goods or services you sell are
taxable.

You can call the Canada Revenue Agency for more information or to register by
phone (at 1-800-959-5525). You can also register online, by mail, or even in person
at a tax services office. (If you’re in Quebec, contact Revenue Quebec at 1-800-
567-4692 instead). Once your registration is complete, you’ll be ready to collect
and remit GST or HST.
The next chapter is all about registering online so you can start filing your
business income tax returns.

You can register for GST and HST easily at Ownr.

Register Your Business

3. GST/HST basics for your business 22

Four
Registering CRA
online accounts
 Registering your business with the CRA online accounts is fairly straightforward
and will help simplify your business taxes.

CRA My Account
Sole proprietors will benefit from signing up with CRA My Account. The online
account lets you manage your personal tax information, including viewing your
account balance for amounts owed, as well as your TFSA and RRSP contribution
limits. You can also make changes to your personal information (e.g. marital
status, home address), view government benefits and credits, and file a GST/HST
rebate.

How to set up my CRA My Account online

Setting up your My Account on the CRA website is simple and straightforward.
Before you start, make sure you have the following personal information handy:

Social Insurance Number (SIN).

Date of birth.

Current address.

Copy of your most recent tax return.

To start your My Account set up, follow these steps:

Step 1: Visit the CRA website

Visit the CRA website and click on the link under
either option 1 or 2. There are two ways to
register and access your tax information:
Option 1: Sign-In Partner Login (includes
financial institutions such as your bank)

Option 2: Create a CRA user ID and

password

Step 2: Enter your tax return line-item

You need to enter one of the line amounts from
your recent tax return. The line number can vary,
so it’s important to have your return on hand.

4. Registering CRA online accounts 24

 Step 3: Review security questions
You’ll then receive a prompt to select and
answer five security questions from a drop-
down list.

Step 4: Enter the security code sent

to you from CRA
The CRA will mail a security code to your home
address, which takes between 5-10 business
days. Once you receive your log-on code, you
can access your My Account online.

4. Registering CRA online accounts 25

 CRA My Business Account
If your business is incorporated or files GST/HST, then My Business Account is
for you. As well as viewing your Corporate Income Tax, My Business Account
lets you manage your payroll, file a return, view account balances, and manage
direct debit. You can also file or adjust a GST/HST return and check your account
balances. Other services include authorizing access for representatives, such
as an accountant, the ability to submit documents in electronic form, and filing
Excise tax returns.

How to set up CRA My Business Account online

The information required to set up My Business Account online is the same as My
Account. You’ll need:

Social Insurance Number (SIN).

Date of birth.

Current address.

Copy of your most recent tax return.

To start your My Account set up, follow these steps:

Step 1: Visit the CRA website

Visit the CRA website to register for a My
Business Account. You need your personal
information handy in order to register. Create a
CRA user ID and password.

Step 2: Login with your Business

Number or via a sign-in partner
What’s different from My Account is that you
need a Business Number (BIN) in order to log in
to My Business Account. You can also access
your My Business Account through a sign-in
partner.

4. Registering CRA online accounts 26

 Step 3: Review security questions
The website will prompt you to set up five
security questions from a drop-down menu. It
will also prompt you to enter your BIN.

Step 4: Enter the security code sent

to you from CRA
You also need a security code from CRA to
access My Business Account. You can choose
to have your CRA code mailed to your mailing
address. Alternatively, it can be sent by email,
then you’ll be asked to contact the CRA to
complete your registration.

Tax time can be a headache for many entrepreneurs. Take control of your business
and finances by opening a CRA online account.

Registering your business with the CRA

online accounts is fairly straightforward,
and will help simplify your business taxes.

Get a CRA Business Number when you register with Ownr.

Register Your Business

4. Registering CRA online accounts 27

Five
Filing your first
GST/HST return
 Now that you’ve registered with CRA My Account, it’s time to start assessing your
business taxes.

If you’ve collected GST or HST from your customers for the goods or services you
provide them as a business, it’s important to understand how to remit those taxes
back to the government.

Filing a GST/HST return also refers to claiming the GST/HST amount you pay on
services or supplies you need to run your business that’s eligible for a credit, up to
a certain limit. This credit is commonly called a “write-off” or ‘“business expense.”
We already covered this in Chapter 2.

If you’re a first-time business owner, filing a GST/HST return may seem more
complicated than filing your personal income tax return as the information
required, and the process of filing the return, are both very different. But as we’ll
show you here, filing your first GST/HST return mostly comes down to following
some basic rules.

If you’ve collected GST or HST from your

customers for the goods or services you provide
them as a business, it’s important to understand
how to remit those taxes back to the government.

5. Filing your first GST/HST return 29

 When (and how often) do you file GST/HST?
Your first step is to figure out when your return is due. The CRA assumes you’ll file
your GST/HST return once in a year. You may be able to opt to file more frequently,
but most small businesses are not required to file more than once a year.

After you register for your GST/HST number, the CRA will mail you a personalized
GST or HST return form, which includes the date you’re required to file your return.

If you’re a sole proprietor, the deadline to file your GST/HST return and make
any outstanding payments is usually aligned to the deadline to file your personal
income tax return. Your personal income tax return form will confirm the deadline
for filing your GST/HST return.

Corporations typically have the same fiscal year-end for both income tax and GST/
HST purposes. If a corporation wants to follow a different GST/HST fiscal year-
end, they have to receive CRA’s consent. If your corporation has a calendar fiscal
year-end (i.e. December 31st), your GST/HST return must be filed by June 15th of
the following year and your payment must be made by April 30th of the following
year.

If your corporation has a non-calendar fiscal year end (i.e. a date other than
December 31st), your GST/HST return must be filed and payment must be made
no later than three months following your fiscal year-end. While most corporations
file their GST/HST return on an annual basis, others file more frequently (monthly
or quarterly). For more information on when to file your GST/HST return, visit the
Revenue Canada website.

5. Filing your first GST/HST return 30

 How do you file GST/HST?

Step 1: Choose an accounting method

The first step is to determine which accounting method suits
your specific situation. Lots of businesses opt for what’s
called the “standard method,” where you pay the difference
between how much GST/HST you collect and any input
tax credits that you’ve earned. The CRA also allows two
additional methods: the Quick Method and the Simplified
Method.

The Quick Method allows you to calculate the GST and

HST you owe by multiplying the tax you collect on sales to
customers using a specific “remittance rate.” This may be
a faster and easier way to calculate what you owe versus
using the standard method. However, not all businesses are
eligible. For example, accountants, lawyers, and financial
advisors cannot use the Quick Method. Check out the
Canadian government’s GST/HST guide, “Who can make this
election?” to find out if you’re eligible.

The Simplified Method uses a single formula to help

businesses file a GST/HST return and claim the ITC. All you
need to do is add up all your eligible business expenses,
multiply it by a fixed amount based on the rate at which you
paid tax, and then add any additional amounts that apply to
your situation. This method reduces the compliance effort
businesses have to put in to separately record their GST and
HST.

Step 2: Fill out your return form

Once you take care of the above (registered for your GST and
HST number, selected an accounting method, confirmed the
due dates for your return and any payments you might owe),
it’s time to complete the actual GST/HST return.

The paperwork the CRA will send you includes two parts:

A “working copy” of your GST/HST return, which allows you

to work through all the required calculations (this is yours
to keep for your records).

5. Filing your first GST/HST return 31

 2

The actual tax return form, which includes the information

you need to submit to the CRA.

On the working copy, you enter the following information:

Total sales and other revenue.

Total tax you’ve collected.

Total tax you’ve paid.

Any other credits or debits.

After you complete these steps, you’ll be able to calculate if you are owed a refund
or if you need to pay the CRA.

Step 3: Complete and file your return

The final step in preparing your return is to transfer all applicable figures from
section (a) (the working copy) to the actual return form. Then you’ll be ready to file
and complete your return.

You can mail your GST/HST return to the address printed on it. The form also
includes a four-digit access code to file your return electronically.

The CRA allows four methods to file your return electronically. It can be through
your bank or credit union, your computer (NETFILE), filed by phone (TELEFILE), or
via a third-party software the CRA has certified for filing GST/HST returns. You can
pay any balance you owe through your financial institution.
At this point, you may be wondering what constitutes a sales tax in Canada? This
depends on which province your business is located in, and we’ll cover this in the
next chapter.

Thousands of entrepreneurs have launched their business with Ownr.

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5. Filing your first GST/HST return 32

Six
Small business guide to
Canadian sales tax rates
 There are many rewarding aspects of being an entrepreneur: realizing your
dreams, being your own boss, flexible hours, and much more. However,
entrepreneurship also comes with responsibilities, including charging correct
sales tax for your goods and services. This is the last, but certainly not least, tool
in your financial knowledge belt.

Which tax should you charge your customers: GST, PST, QST, RST, or HST? Pretty
confusing, isn’t it? Don’t worry. This chapter covers them all: the types of sales
tax in Canada, the rates for each province, general rules and exemptions, how to
register for a sales tax account, as well as how to file and pay your sales tax.

We encourage you to speak to a tax professional, but this chapter can help you
prepare yourself with some foundational knowledge.

Like most things, it helps to have a system in place.

5. Filing your first GST/HST return 34

 Types of sales tax in Canada
There are two tiers of sales tax in Canada: federal and provincial. Let’s understand
what they all mean:

HST (Harmonized Sales Tax):

Some provinces merged their
provincial sales tax with GST. Simply
put, harmonized sales tax (HST) is a
combination of GST and PST.

PST (Provincial Sales Tax):

A sales tax levied on goods and taxable
services in provinces that have not
harmonized their PST with the federal
GST. Rates are set by each province
and do vary, as not all provinces charge
PST.

GST (Goods and Sales Tax):

This is a federal tax charged on the
supply of most goods and other
property and services in Canada.
Businesses must register and charge
GST/HST on all taxable goods, other
property, and services unless you
qualify as a small supplier. A small
supplier is defined as a person whose
total taxable revenue is $30,000 or less
in the last four consecutive calendar QST (Quebec Sales Tax):
quarters. A small supplier can still
elect to register, in which case it must Businesses registered in Quebec are
collect GST. required to charge customers Quebec
sales tax (QST) instead of PST. QST is
collected on the supply of most goods,
RST (Retail Sales Tax): other property, and services.
The provincial sales tax in Manitoba is
called retail sales tax (RST).

5. Filing your first GST/HST return 35

 Sales tax and rates by province
Businesses may be required to collect one or more of the sales taxes mentioned
above. To make it easier for you, we created a list of sales tax types and combined
rates applicable to each province/territory:

Province or Territory Sales Tax Type Combined Tax Rate

Alberta GST 5%

British Columbia GST & PST 12%

Manitoba GST & PST 12%

New Brunswick HST 15%

Newfoundland & Labrador HST 15%

Northwest Territories GST 5%

Nova Scotia HST 15%

Nunavut GST 5%

Ontario HST 13%

Prince Edward Island HST 15%

Quebec GST & QST 14.975%

Saskatchewan GST & PST 11%

Yukon GST 5%

Sales tax rules and exemptions

Sales tax rules: Canadian businesses need to understand the rules that
determine which province’s taxes to charge. The applicable sales tax to
charge is typically based on the location of the customer, or where goods
are delivered. For example, if you sell reclaimed furniture out of your store in
Vancouver and ship to a customer in Toronto, you’ll charge 13% Ontario HST
on the sale.

5. Filing your first GST/HST return 36

 Zero-rated sales tax and exemptions: Not all goods and services are taxable.
If you are a new business owner or planning to be, it’s important to familiarize
yourself with what is––and isn’t––taxable in Canada. Under the GST, there are
goods, other property, and services that are either taxed at the rate of 0 per
cent (e.g. basic groceries) or exempt (e.g. home and auto insurance, public
transit, child care). Also, PST-exemptions and exceptions vary from province
to province. We highly encourage you to visit the government websites or talk
to a tax professional to verify.

Register for a sales tax account

You need to register for a sales tax account to charge and file sales tax with the
government. There are usually several ways to register (online, call, in person,
etc.). Here’s a list of websites to learn more and register:

GST/HST: The Government of Canada’s website.

QST in Quebec: Revenu Quebec.

RST in Manitoba: TAXcess.

PST in British Columbia: eTaxBC.

PST in Saskatchewan: Saskatchewan eTax Services.

Filing and paying sales tax

Like most things, it helps to have a system in place. As you collect sales tax, we
recommend you deposit the funds in a designated bank account for paying the
CRA or provincial revenue ministry.

Most of the filing can be done electronically, by mail, or at a participating financial

institution.

5. Filing your first GST/HST return 37

 GST/HST
Businesses must file tax returns regardless of whether there’s tax collected or not.
Moreover, a business can recover GST or HST paid on its tax return/claim, even
if they have not collected any HST. Learn more information on the Government of
Canada’s website.

Quebec

Businesses collecting QST are required to file a QST return every reporting
period, even if you don’t owe QST.

Manitoba
Any RST you collect must be reported on an RST return form, which has
line-by-line instructions. How often you’re required to file depends on the
amount of RST you charge each month.

British Columbia

If you charge PST for customers in British Columbia, you must remit all PST
charged, whether you received the tax from customers or not.

Saskatchewan

Businesses that collect taxes in Saskatchewan must file a PST return

monthly, quarterly or annually, depending on the amount of tax you report.
Even if your business collected no tax for that period, you will still file a
“MIL” return.

This may all seem complicated, but keeping this guide handy when
determining tax rates will help the process go smoothly. You’ve got this!

You can register for GST and HST easily at Ownr.

Register Your Business

5. Filing your first GST/HST return 38

The Takeaway
 Taxes can feel scary, but they don’t have to be. Empowering yourself with the
knowledge necessary to successfully complete your tax returns doesn't just
end with submitting your return. It’s a process you can complete throughout the
year and doing so will ensure you make the most out of your business expenses,
charge the right amount of taxes on your goods or services, and follow the
guidelines set out by the CRA.

The onus of compliance is on business owners

As a business owner, it’s not just wise to file your taxes properly, it’s the law. If you
fail to report your financials to the CRA every year and don’t pay your dues, you’ll
be penalized for non-compliance. It is your obligation as a business to report your
income and pay the corresponding tax every year to the government.

Besides, doing your taxes properly can help you save money in the long run, not to
mention reduce your stress. And that’s good for everyone.

With Ownr, you can easily file for your GST/HST account and
let our team of small business experts help you along the way.

Register My Business

8. The takeaway 40
ownr.co