The sprawling expanse of Canada comes with a similarly vast mosaic of tax laws. Business owners need to be mindful of Canadian provincial taxes and how they could affect business operations, particularly for businesses operating in more than one province. Each province in Canada maintains the right to levy its own taxes and impose its own regulations regarding tax collection and remittance. If you would like to learn more about your potential tax liabilities, schedule an appointment with a Canadian tax attorney at Jeremy Scott Law by calling (902) 403-7201 today.
What Taxes Do Businesses Pay in Canada?
Businesses in Canada, like those in most other nations, must pay a wide range of taxes. One of the most broadly applicable taxes business owners need to be aware of is the Goods and Services Tax (GST) on the federal level. A 5% tax is levied on most goods and services. Canadian businesses are responsible for collecting this tax and remitting it to the federal authorities. Also at the federal level, the Canadian government imposes a corporate income tax applicable to many businesses, which is based on the company’s taxable income.
Provincial and Territorial Taxes
Along with taxes on the federal level, Canadian businesses also need to ensure their compliance with those levied at the provincial or territorial level. Some provinces use a Provincial Sales Tax (PST) on a business’s goods and services, while others attempt to simplify calculations for businesses by including provincial taxes on goods and services with the federal tax to create a Harmonized Sales Tax (HST) on a business’s goods and services.
Local and Municipal Taxes
Another tax consideration for some Canadian businesses is a property tax that local municipalities could implement. These taxes are based on the property’s assessed value, allowing these towns and cities to generate additional revenue. Companies that own the property on which they conduct business may be subject to these property taxes.
What Is the Corporate Provincial Tax Rate in Canada?
Corporate Canadian provincial taxes help to determine a business’s tax liability. The differences in these rates from one province to another can be attributed to the decentralized nature of the tax system. Each province or territory independently determines its corporate tax rate. All businesses must grasp these rates’ implications in order to sidestep potential complications. Typically, these rates are calculated as a percentage of taxable income. As a result, they are subject to annual fluctuations in line with government fiscal policies.
The fluctuations in these tax rates can be attributed to several factors, including:
- Regional economic conditions
- Government priorities
- Fiscal policies
Some provinces offer incentives and deductions designed to attract businesses specializing in specific sectors. Alberta extends the allure of a relatively favorable corporate provincial tax rate, fixed at 8%, making it a magnet for companies seeking to curtail their tax liabilities. On the other hand, British Columbia enforces a steeper corporate provincial tax rate, which can rise to as much as 12% based on the nature of the business’s industry.
How Do Provincial Taxes Work in Canada?
The Provincial Sales Tax (PST) varies by province. British Columbia, Saskatchewan, Manitoba and Quebec all collect these taxes in addition to the the Federal GST. As a result, both businesses and consumers in these provinces may need to pay province-specific taxes on certain purchases. These tax rates are as follows:
British Columbia
This province has a PST rate of 7%. The tax is applied to most services and goods.
Saskatchewan
Most goods and services will have an added 6% PST, including leases and retail transactions.
Quebec
Most goods and services will have an added 9.975% QST, and the rules are very similar to the GST rules.
Manitoba
Manitoba charges a 7% PST on goods and services. Books, food, and residential heating costs are exempt from the Manitoba PST.
All Other Provinces
Other provinces (except for Alberta – which doe not have a provincial sales tax) have harmonized their taxes with the federal system. In these provinces, federal and provincial taxes are combined into a single tax, calculated as HST. If you would like to learn more about all the potential taxes for your business, consider scheduling a consultation with Jeremy Scott Law.
What Are the GST and HST Taxes in Canada?
In Canada’s layered tax system, two notable consumer taxes stand out: the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST). Understanding how these two taxes work important to ensuring tax compliance for Canadian businesses.
Goods and Services Tax (GST)
The Goods and Services Tax is a federal levy applicable to the majority of goods and services in Canada. Its inception in 1991 marked a milestone in the country’s tax system modernization. GST operates as a value-added tax, imposed at each stage of production and distribution. Presently, the GST is firmly set at 5%. Consumers bear an additional 5% cost on their purchases for most taxable goods and services. Since its introduction, this rate has maintained stability, although intermittent discussions have arisen regarding the possibility of rate adjustments.
Input Tax Credits and GST
Canadian business owners will be glad to know that in many circumstances they can claim Input Tax Credits (ITCs). These credits allow businesses to recover the GST they paid on their expenses. With ITCs, the GST system avoids most double taxation scenarios.
Exceptions to GST
While the GST applies to most goods and services, there are exceptions. Basic groceries, prescription drugs, and medical services are exempt from the GST. Additionally, some financial services and real estate transactions are considered exempt supplies.
Harmonized Sales Tax (HST)
The Harmonized Sales Tax (HST) is a tax system that unites the federal GST with a provincial sales tax in specific Canadian provinces:
- Ontario
- Nova Scotia
- Prince Edward Island
- New Brunswick
- Newfoundland and Labrador
A unified tax structure fuses federal and provincial components into a single tax within this “harmonized” system. While the federal rate remains the same nationwide, the addition of PST means that the HST rate varies from one province to another. Ontario has a combined HST rate of 13%, while the others, such as Nova Scotia, apply an HST rate of 15%.
The HST offers numerous advantages for businesses and consumers alike. Streamlining the federal and provincial tax systems simplifies the tax collection and reporting process for businesses. In an effort to reduce the impact of the HST on low-income individuals and families, certain provinces extend rebates or exemptions on specific items. These rebates serve to alleviate the tax burden, especially for those who may be most economically affected by the HST.
Reach Out to Our Business Tax Attorneys To Learn More
Within Canada, businesses navigate a complex taxation framework that involves federal, provincial, and territorial taxes. Corporate Canadian provincial taxes vary depending on the specific location. Other ways of categorizing taxes may include income tax, carbon tax, and other levies. Comprehending the intricacies of the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) is important, especially for Canadian companies conducting operations in more than one province. If you would like to learn more, consider scheduling an appointment with Jeremy Scott Law by calling (902) 403-7201.