H.S.T. – What Small Business Needs to Know
What is H.S.T.?
The Harmonized Sales Tax (“H.S.T.”) is the 15% tax which combines provincial sales taxes and G.S.T. and which is applicable in the Maritime provinces.
For purposes of collecting H.S.T. or G.S.T. the province of residence of the vendor is irrelevant. The province in which the goods are supplied (sold) will dictate whether the 7% G.S.T. or the 15% H.S.T. applies.
There is no separate requirement to register for the H.S.T. Any G.S.T. registrant is automatically an H.S.T. registrant and is required to determine the correct rate of tax to charge and remit based on the place a sale takes place. Furthermore, registrants are generally not required to separately identify the Federal and Provincial components when remitting tax or making input tax credit claims.
Duty to Collect
Note that the difference between H.S.T. applying or not applying is not the difference between there being tax or no tax. Rather it is a question of whether G.S.T. at 7% or H.S.T. at 15% applies. Since both are usually recoverable, the risk of getting it wrong is less on the purchasing side than on the sale sid.
If H.S.T. is under collected, a registrant could be out of pocket for the 8% difference, plus interest and possibly penalties. If a registrant over collects then its purchaser will have overpaid tax but will be entitled to recover it as an input tax credit. Furthermore if a registrant over collected tax it will, of course, have a liability which it must remit to Revenue Canada and may be subject to penalties and interest on such over collection.
Application of H.S.T.
Where goods are sold in an H.S.T. province, and both ownership and possession are transferred, H.S.T. applies to the sale. The sale of tangible personal property takes place in the province in which the vendor delivers the property or makes it available to the purchaser. H.S.T. will also apply where the purchaser is in an H.S.T. province and the vendor is not if the goods are delivered to the purchaser.
As a practical matter if your business is in Ontario and you ship goods to a resident in the Maritimes, you are required to collect 15% H.S.T. rather than 7% G.S.T.
Your invoices in such cases should indicate that 15% H.S.T. is being charged and should also provide your G.S.T. registration number to enable your customer to claim Input Tax Credits.
If you purchase property from a Vendor in the Maritimes provinces and arrange to pick it up in the Maritimes then you will have to pay H.S.T. at 15%. You must ensure that the invoice which you are provided indicates the Vendor’s H.S.T. number.
Input Tax Credits
A registrant is entitled to an input tax credit equal to the amount of tax actually paid. So if 15% H.S.T. was paid the purchaser is entitled to an input tax credit for that amount.
What this means on a practical level is that if you are an Ontario resident but pay 15% H.S.T. due to a purchase from the Maritimes then you will receive a full input tax credit for the amount of tax actually paid.
It is important to remember that directors of corporations are personally liable for any unremitted G.S.T. or H.S.T.
"This article provides information of a general nature only. It is only current at the posting date. It is not updated and it may no longer be current. It does not provide legal advice nor can it or should it be relied upon. All tax situations are specific to their facts and will differ from the situations in the articles. If you have specific legal questions you should consult a lawyer."