PST and the solopreneur - Part 2: Non-Canadians, “tax included”, input tax credits, and when to charge sales tax

Last week we started talking about provincial sales tax. We went over the basics, exemptions, and how to charge when your customers are located in another province.

This week we’ll continue the topic. We’ll cover selling to customers outside Canada, selling your goods/services as “tax included”, input tax credits, and at what point you need to start charging PST.

Purchasers from outside Canada

There are two ways that you can have purchasers outside Canada.

  • Someone is visiting Canada and makes a purchase from you in person (e.g. in your store).

  • Someone who lives outside Canada buys your product/service through the internet, or through mail order, and you deliver the product/service to them in their country.


Generally speaking, in either case, the purchaser is charged the sales tax rate of the province your business is in.

What if I charge “tax included”?

If you charge a total price that includes tax, you still need to break the tax down, in your own records as well as on the invoice you give your customers.

It’s the same if you have a “we pay the tax” sale. Here’s how it works.

Let’s say you have an item that you normally sell for $100. Let’s assume the PST is 7%, and the GST (because you can’t forget that) is 5%. That means the usual total cost to the purchaser would be $100 + $7 + $5 = $112.

For your “we pay the tax” sale, their total is only $100, not $112. But in reality, what it really means is that the product costs:

$ 89.28 + $6.25 PST + $4.47 HST = $100.00

So you have to figure out the math, and make sure that your accounting reflects the tax. You also need to make sure that the customer invoice shows the breakdown. And you still have to remit the tax to the CRA.

Do you have to charge PST?

As with GST, the general CRA rule is that you don’t have to charge PST if your business is what the CRA calls a small supplier. For GST, a small supplier is defined as a business that makes less than $30,000 gross per year. That rule applies no matter which province your business is located in. However, for PST, the definition of small supplier varies by province.

For most provinces, a small supplier is also considered to be a business that makes less than $30,000. Because of this, if your business is located in one of those provinces you only have to register once—federally with the CRA—for both PST and GST purposes. (This is typically the case for those provinces which have a combined PST+GST tax, such as HST).

For BC, Quebec, Saskatchewan, and Manitoba, however, the threshold is different. For Manitoba and BC the small supplier revenue threshold is $10,000. In Saskatchewan, there is no concept of “small supplier”—all businesses have to charge PST. In Quebec, it is $30,000, but you must register separately for GST and PST.

That means if your business is in one of those four provinces, you may have to start charging PST before you are required to start charging GST. And it also means you have to register twice–federally (for the GST) and provincially (for the PST).

Remitting the tax you’ve collected

The process for remitting PST depends on which province your business is located in. If your province combines PST and GST into HST, then you just file an HST return.

If your province doesn’t combine it’s PST and GST into an HST, then you typically have to complete two forms: one to remit the PST to your province, and one to submit your GST to the CRA.

How often you have to remit the PST depends on which province you are in and also on your business revenue—businesses with higher revenues may have to pay quarterly, or even monthly.

Tips

In closing, here are some tips to help you

  • Make sure you understand the PST rules for your province.

  • Make sure you also understand the PST rules for any other province you may have customers from.

  • Create your invoices with a PST exemption line, so it is ready when you need it.

  • PST is not income. Record it as a separate item in your accounts. Essentially, you are holding this money in trust until you remit it to the CRA.

  • Don’t make the mistake of not taking the place of supply rule seriously. If you undercharge (e.g. charge 8% when you should have charged 10%), the government can hold you liable to make up the difference.

  • Get processes and procedures in place before you need them.


And finally, here are a few links if you are interested in reading more about PST.

GST/HST rates and place of supply rules

Input tax credits

General information for GST/HST Registrants


Cheers,

Tim

Helping you engineer the business of you


p.s. looking to accelerate your success? Check out our Free Agent Collective

Tim Ragan