Understanding Canadian taxes can be a complex task for businesses and individuals. It's complicated because there are two kinds of tax systems - one from the federal government and another from the provincial governments. For businesses, this is particularly challenging as they need to carefully manage receipts and transactions to ensure they comply with tax rules and manage their finances correctly.
So what are the Canadian tax types? Canada is a bit special on how it manages taxes on goods and services. There is usually a federal tax rate (GST) that is applied to most goods and services, as well as province-specific sales tax like QST in Quebec. Some provinces have also started to adopt a new combined tax system called "Harmonized Sales Tax", or HST, which aims to combine the two for simpler tax management. However, it is unlikely to be adopted nationwide anytime soon due to political reasons.
But without further ado, here is a quick rundown of the different tax types used in Canada:
GST (Goods and Services Tax): A federal tax of 5% that is applied to most goods and services sold or provided in Canada.
PST (Provincial Sales Tax): A tax applied at the provincial level, the rates and rules of which can vary significantly from one province to another. Some provinces have their own names for this tax, like QST (Quebec Sales Tax) and RST (Retail Sales Tax, Manitoba).
HST (Harmonized Sales Tax): A combined tax that merges both the GST and PST. It is implemented in certain provinces to streamline the tax collection process. The HST rates can vary based on the province and include both the federal and provincial tax components.
With each province having the autonomy to set its tax rules and rates, the varying application of GST, PST, QST, RST, and HST across different provinces necessitates a dynamic and intelligent system to manage and track these taxes efficiently.
How SparkReceipt Helps With Tracking Expenses That Use the Dual Tax System
We at SparkReceipt strive to support all tax systems and use cases around the world, not just the US. That means also incorporating this Canadian system into our app. We have made custom prompts to allow the AI to specifically look for these dual tax cases and attempt to separate the two tax types automatically. Here is an example receipt:
As you can see, the total, and both tax types were correctly picked up from the receipt. The accuracy of this auto-extraction is greatly affected by the clarity, quality and legibility of the receipt. In a separate article we have gathered some tips and tricks to always ensure the best possible scan quality for your scanned receipts.
For freelancers and small business owners, dealing with GST (Goods and Services Tax) and PST (Provincial Sales Tax) comes with its own set of rules and procedures. GST is a federal tax and it’s required to be charged by businesses all over Canada, once their revenue exceeds a certain threshold. These businesses, or freelancers, must register for a GST/HST account and collect tax on sales of goods and services, and later report these amounts to the Canada Revenue Agency (CRA) through regular GST/HST returns, which can be annual, quarterly, or monthly. On the other hand, PST is managed at the provincial level, with different provinces having their own set of rules regarding who must register, what items are taxed, and how often tax must be reported and remitted. For instance, if a freelancer in British Columbia sells taxable services or goods, they generally need to register to collect PST and remit it to the British Columbia Ministry of Finance. Keeping track of these divergent systems — GST federally and PST provincially — necessitates diligent record-keeping and awareness of the various due dates and rules to ensure accurate and compliant tax reporting.
SparkReceipt includes breakdown of these separate tax types in generated Excel and PDF expense reports, allowing to easily track both GST and PST separately and help you to fulfill your tax obligations.
In today’s tech-savvy era, handling finances efficiently is shifting towards smart and automated solutions. SparkReceipt is aiming to be an intelligent solution for Canadian freelancers and small businesses, streamlining the management of the dual tax system with precision and ease.
Stay connected for upcoming updates. Our efforts are aimed at enhancing your experience and simplifying financial management, expense tracking and preaccounting tasks across all small businesses around the world.