GST/HST and other commodity taxes

Income tax is not the only tax a business must manage. The goods and services tax (GST) and harmonized sales tax (HST) under Part IX of the Excise Tax Act apply to most goods and services supplied in Canada, and every business that makes taxable supplies above a small threshold must register, charge tax, claim input tax credits and file returns. GST/HST is a value-added tax: it is collected at every stage of production and distribution, but businesses recover the tax they pay on their inputs, so the burden falls on final consumers. Getting it wrong is expensive, because a business that fails to charge tax must still remit it, and directors can be personally liable for unremitted amounts. This lesson covers the structure of GST/HST, the classification of supplies, registration, place of supply, input tax credits, filing and the quick method, with a note on provincial sales taxes, using Brandt Aerial Inc.'s 2027 GST/HST.

The structure of GST/HST

GST has applied at 5 per cent since 2008. Five provinces have harmonized their sales taxes with GST, so that a single HST is charged at a combined rate: 13 per cent in Ontario; 15 per cent in New Brunswick, Newfoundland and Labrador and Prince Edward Island; and 14 per cent in Nova Scotia, which reduced its rate from 15 per cent on 1 April 2025. The CRA administers HST, except that Quebec administers both GST and its own Quebec sales tax (QST) of 9.975 per cent through Revenu Québec. British Columbia, Saskatchewan and Manitoba levy separate retail sales taxes on goods and some services, at 7, 6 and 7 per cent respectively, and Alberta and the territories levy no provincial sales tax. Manitoba's tax is the retail sales tax (RST), administered by the province; it is not recoverable like an input tax credit, so a Manitoba business pays RST on the equipment and supplies it buys for its own use unless an exemption applies.

Taxable, zero-rated and exempt supplies

Every supply falls into one of three categories. Taxable supplies are charged GST/HST at the applicable rate. Zero-rated supplies, listed in Schedule VI, are taxable at 0 per cent: they include basic groceries, prescription drugs, many medical devices, agricultural and fishing products, and exports of goods and of services to non-residents. Exempt supplies, listed in Schedule V, are not taxed at all: they include residential rents and sales of used residential housing, most health and dental care services, child care, many educational services, and most financial services. The distinction between zero-rated and exempt matters: a supplier of zero-rated goods or services can claim input tax credits for the tax it pays on its costs, while a supplier of exempt supplies cannot, so tax on its inputs becomes a cost of doing business. Because Brandt Aerial Inc.'s inspection for a US client is a service supplied to a non-resident, it is generally zero-rated, as long as the service is not in respect of real property situated in Canada or performed for an individual while in Canada.

Registration and the small supplier threshold

A person engaged in a commercial activity in Canada must register for GST/HST unless it is a small supplier, which means that its worldwide taxable supplies, including those of associated persons, did not exceed $30,000 in a single calendar quarter or over the last four consecutive calendar quarters. A person who exceeds the threshold in a single quarter must register and begin charging tax on the supply that put it over; one who exceeds it over four quarters ceases to be a small supplier at the end of the month after the quarter in which the threshold was exceeded and must register within 29 days of its first taxable supply after that. Small suppliers may register voluntarily, which lets them claim input tax credits, an advantage for businesses that sell mainly to other registrants. Since 1 July 2021, the digital economy rules require non-resident vendors of digital products and services, and platform operators, to register under a simplified regime and collect GST/HST from Canadian consumers. Brandt Aerial Inc., with $486,000 of taxable supplies, was required to register, and it took over the GST account of Leah's proprietorship when it acquired the business; a joint election under section 167 let the business assets move to the corporation without GST.

Place of supply

Because HST rates differ by province and some provinces are not harmonized, a registrant must determine the place of supply of each supply to know whether to charge GST at 5 per cent or HST at a provincial rate. Place of supply rules, set out in Schedule IX and in regulations, look to the delivery location for tangible goods, to the location of the property for real property and services in relation to real property, and, for most other services, to the province in which the recipient's address obtained in the ordinary course of business is located; if that cannot be determined, other tests apply. Special rules cover passenger transportation, telecommunications, intangible property and services such as training. Brandt Aerial Inc. therefore charges GST of 5 per cent to its Manitoba clients, HST of 13 per cent to its Ontario clients and HST of 14 per cent to its Nova Scotia client, although all of the work is done by the same Winnipeg crews. Services in relation to real property, such as inspecting a specific building, are supplied where the property is located, which may produce a different answer from the address rule.

Input tax credits

A registrant claims input tax credits (ITCs) for GST/HST paid or payable on property and services acquired for consumption, use or supply in the course of its commercial activities. If an input is used only partly in commercial activities, the ITC is limited accordingly, and capital property generally qualifies in full only if it is used primarily (more than 50 per cent) in commercial activities. Several restrictions mirror the income tax rules: only 50 per cent of the tax on meals and entertainment is recoverable; no ITCs are allowed for club memberships whose main purpose is recreation; the ITC on a passenger vehicle is limited to tax on the class 10.1 capital cost limit ($39,000 for 2026); and no ITC is allowed for goods and services used mainly for the personal benefit of an owner or employee. To claim an ITC, the registrant must hold documentation showing the prescribed information, which increases at purchase thresholds of $100 and $500: above $500, the invoice must show the supplier's name and GST registration number, the recipient's name, the terms of payment and a description of the supply. ITCs can generally be claimed within four years.

Filing, remitting and the quick method

Each registrant has a reporting period based on its annual taxable supplies: annual if supplies are $1.5 million or less, quarterly if they are more than $1.5 million and up to $6 million, and monthly above $6 million, with options to elect a shorter period. Annual filers must pay quarterly instalments if their net tax for the year was $3,000 or more. Net tax for a period is the GST/HST collected or collectible minus ITCs and adjustments; a negative amount is refunded. Small businesses with annual taxable supplies, including those of associated persons, of $400,000 or less may elect the quick method, under which they remit a fixed percentage of their tax-included sales, set by province and by whether they mainly resell goods or provide services, and claim ITCs only on capital purchases; the difference is often a modest saving and a large simplification. A simplified method for calculating ITCs is available to registrants with sales of $1 million or less. Directors of a corporation are jointly and severally liable for net tax it fails to remit, unless they exercised due diligence.

Brandt Aerial Inc.'s 2027 GST/HST

Brandt Aerial Inc.'s 2027 supplies are $300,000 of inspections for Manitoba clients, $90,000 of mapping for Ontario clients, a $30,000 survey for a Nova Scotia client and a $66,000 inspection for a US client. During the year it paid GST of 5 per cent on $160,000 of drones and sensors, a $35,000 van and $80,000 of taxable operating expenses, and on $6,200 of meals. The program computes its net tax for the year and checks whether the quick method is available.

# Brandt Aerial Inc.: GST/HST for 2027 (illustrative; rates in force in 2026)
RATES = {"MB": 0.05, "ON": 0.13, "NS": 0.14}          # GST in Manitoba; HST in ON and NS
supplies = [("Inspections for Manitoba clients", "MB", 300_000),
            ("Mapping for Ontario clients", "ON", 90_000),
            ("Survey for a Nova Scotia client", "NS", 30_000),
            ("Inspection for a US client (zero-rated export)", "ZR", 66_000)]
collected = 0.0
for name, prov, amount in supplies:
    tax = amount * RATES.get(prov, 0.0)
    collected += tax
    print(f"{name:<48}{amount:>9,}  GST/HST {tax:>9,.2f}")
itcs = {"Drones, sensors and van (GST 5%)": (160_000 + 35_000) * 0.05,
        "Taxable operating expenses (GST 5%)": 80_000 * 0.05,
        "Meals, ITC limited to 50%": 6_200 * 0.05 * 0.50}
print(f"{'GST/HST collected':<57}{collected:>11,.2f}")
for k, v in itcs.items():
    print(f"  less ITC: {k:<45}{-v:>11,.2f}")
net = collected - sum(itcs.values())
print(f"{'Net tax remitted for the year':<57}{net:>11,.2f}")
taxable_supplies = sum(a for _, _, a in supplies)
print(f"Taxable supplies {taxable_supplies:,}: quick method allowed? {taxable_supplies <= 400_000}")
print(f"Above the $30,000 small supplier threshold, so registration is required: {taxable_supplies > 30_000}")

Inspections for Manitoba clients                  300,000  GST/HST 15,000.00
Mapping for Ontario clients                        90,000  GST/HST 11,700.00
Survey for a Nova Scotia client                    30,000  GST/HST  4,200.00
Inspection for a US client (zero-rated export)     66,000  GST/HST      0.00
GST/HST collected                                          30,900.00
  less ITC: Drones, sensors and van (GST 5%)               -9,750.00
  less ITC: Taxable operating expenses (GST 5%)            -4,000.00
  less ITC: Meals, ITC limited to 50%                        -155.00
Net tax remitted for the year                              16,995.00
Taxable supplies 486,000: quick method allowed? False
Above the $30,000 small supplier threshold, so registration is required: True

Brandt Aerial Inc. collects $30,900 of GST/HST: $15,000 of GST from its Manitoba clients, $11,700 of HST from Ontario and $4,200 from Nova Scotia, and nothing on the zero-rated export. Its ITCs are $13,905: $9,750 on the drones, sensors and van, $4,000 on operating expenses and $155 on meals at the 50 per cent limit. It remits net tax of $16,995 for the year. Because its taxable supplies exceed $400,000, it cannot use the quick method, and because they are under $1.5 million, it is an annual filer by default; it elects quarterly filing to keep the remittances manageable and to match its cash flow. Note that the GST/HST collected is not the corporation's revenue: its income statement shows $486,000 of revenue, and the $30,900 is a liability to the Receiver General until remitted, net of ITCs. The Manitoba RST it paid on its own purchases is a cost, not recoverable.