As a municipality in Canada, navigating the complex world of taxes can be daunting. In particular, understanding the goods and services tax/harmonized sales tax (GST/HST) can be a challenge. The GST/HST is a value-added tax that applies to most goods and services in Canada, but there are specific rules and exemptions for municipalities. Understanding these rules is crucial to ensuring that your municipality is compliant, avoiding steep penalties or hefty fines. An experienced Canadian tax attorney can help you understand the basics of GST for municipalities in Canada, including what it is, how it applies to your municipality, and what exemptions and rebates may be available under the laws of your province. Whether you are a newly elected official or a seasoned municipal employee, understanding the ins and outs of GST/HST is essential for the financial well-being of your municipality. If you have questions about HST for municipalities or other taxes, consider speaking with one of the experienced Canadian tax attorneys with Jeremy Scott Law at (902) 403-7201.
What Is a Municipality in Canada?
For GST and HST purposes, the Canada Revenue Agency (CRA) considers a municipality to be any of the following:
- Incorporated city
- Village
- Town
- Township
- District
- Metropolitan authority
- County
- Rural municipality
- Other incorporated municipal body
Additionally, under the Minister of National Revenue’s authority, the CRA may grant partial or total municipality status when:
- The CRA designates a local authority to be a municipality, at which point all provisions apply to the local authority as they do to a municipality. Local authorities may include para-municipal organizations, fire protection organizations, unincorporated municipal government units, provincially or territorially established authorities with a special purpose, or Indian bands, tribal councils, or band-owned councils recognized by Indigenous Services Canada.
- The CRA may also designate a person to be a municipality for certain municipal services they provide. This designation only applies to those municipal activities for which the person has been designated, and not to the same person in the course of their everyday personal activities.
GST/HST for Municipalities
Municipalities must consider the impact of GST or HST depending upon where they are located in Canada. Essentially, GST and HST, are the same tax, but applied at differing rates. GST/HST is a value-added tax and operates on an input-output system. When a taxpayer is purchasing applicable goods or services, GST/HST is paid (input). When a taxpayer is selling, GST/HST is collected (output). The taxpayer, if involved in a commercial activity then subtracts the input tax from the output tax and the difference is remitted to the tax authority.
GST
GST stands for goods and services tax. This is a tax that applies to most supplies of goods and services made in Canada. The GST also applies to many supplies of real property (such as land, buildings, and interests in such properties), as well as to several forms of intangible personal property such as trademarks, rights to use patents, and digitized products. GST is a federal tax that applies across Canada.
HST
Some provinces that participate in GST have a separate provincial sales tax as well. Others that have a provincial sales tax have chosen to harmonize it with the GST. In these provinces, the combined tax is known as the harmonized sales tax (HST). HST is the GST rate plus the provincial sales tax rate added together. HST generally applies to the same goods and services as the GST. In some participating provinces, however, there are point of sale rebates equivalent to the provincial part of the HST on some qualifying items. If you have questions about whether GST or HST applies to a good or service, Jeremy Scott Law may be able to assist you.
Current GST/HST Rates
For most commercial and consumer purposes, GST and HST are both weighted differentially across distinct categories of goods and services. Municipalities are assigned their own tax rate. As of 2023, the GST for municipalities is 5% for:
- Alberta
- British Columbia
- Manitoba
- Nunavut
- Northwest Territories
- Saskatchewan
- Quebec
- Yukon
The HST for municipalities is 13% for Ontario and 15% for New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
Do Municipalities Pay GST/HST?
Yes municipalities in Canada pay GST/HST.
What Is the Municipal Rebate for GST/HST?
Since many supplies made by a municipality are exempt from GST/HST, municipalities may often NOT be entitled to claim input tax credits. Where input tax credits are not available, a rebate may be available to recover a portion of the GST/HST that has been paid by the municipality. This rebate allows the municipality to recover 100% of the GST or 100% of the federal portion of the HST that has been paid or is payable on eligible expenses and purchases. In order to claim this rebate, the municipality must be unable to recover the GST or HST through an input tax credit (ITC), or any other rebate, refund, or remission.
A municipality does not have to be registered to apply for the municipal rebate. However, municipalities are only entitled to claim the 100% rebate to the extent that they intended to use, consume, or supply the purchase or expense during their municipal activities.
Provincial Rebate
In addition to the municipal rebate, certain municipalities may also claim a rebate for a percentage of the provincial part of the HST that was paid or is payable on eligible expenses or purchases. Like the federal rebate, this rebate can only be claimed to the extent that the municipality intended to use, consume, or supply the expense or purchase during municipal activities.
The municipalities located in certain HST provinces can claim this rebate and the rebate rates are:
- New Brunswick, Newfoundland, Labrador, and Nova Scotia: 57.14%
- Ontario: 78%
What Goods and Services Do Municipalities Supply That Are Not Subject to GST/HST?
Municipalities provide many supplies of goods and services that are not subject to GST/HST. Some of these things include:
- Library services
- Property registration
- Licenses
- Court registration
- Residential services
- Fire protection services
- Law enforcement services
Does Your Organization Need Help Understanding GST/HST for Municipalities?
Understanding the goods and services tax/harmonized sales tax (GST/HST) is important for municipalities across Canada. The structure of rebates, though valuable for eligible municipalities, further complicates the tax system and can make a municipality’s tax obligations difficult to understand. An experienced tax attorney can help you get familiar with the basics of GST for municipalities in Canada, including what it is, how it applies to your municipality, and what exemptions and rebates may be available to you. If you need help understanding or paying GST or HST for municipalities, consider contacting Jeremy Scott Law at (902) 403-7201 to discuss your legal options.