If you thought GST rules were complicated, wait until you learn about PST!

It’s another of those necessary topics you need to know about, so that’s the subject of today’s article.

PST basics

PST stands for Provincial Sales Tax. Actually, the Government calls it RST (Retail Sales Tax). It is charged on just about any product or service you buy, from milk, to gas, to snow removal, to dental hygiene treatments. How much you pay depends on the province you live in. The following chart shows the RST rates across Canada.

Exemptions

There are some products that you do not pay RST on. Which those are depends on the province.

For example, in Ontario here are some of the items that are exempt.

Children’s clothing
Children’s car seats
Diapers
Books, newspapers, magazines

And here are some items that are exempt in B.C.

Children’s clothing
Basic Food
Restaurant meals
Prescription medicine
School supplies
Bicycles

That means if you sell any such items, you do not charge RST on them. Well, it usually means you don’t charge. Because here’s where RST gets complicated—whether or not you charge the tax depends not on where your business is located, but on where the buyer is located.

RST and buyers from other provinces

In today’s global world, it’s not enough to just be aware of the tax rules in our home country or province. We also need to know about the tax rules for other places, since our customers may be located there. That’s because the amount of tax charged can depend not on where your business is located, but on where the customer lives.

So don’t make the mistake of thinking that just because your business is located in, say, Alberta, where the RST rate is 0%, that you don’t ever have to charge RST. The CRA has a place of supply rule that says you have to charge tax based on the location of the purchaser.

So if you live in province A, and you sell something online to a person who lives in province B, you have to charge them province B RST. For example, if your business is located in Ontario, where the RST is 8%, and you sell a $10 item to someone who lives in Nova Scotia, where the RST is 10%, they would pay $1 in sales tax, not 80 cents.

But what if you don’t know where the purchaser lives? This happens frequently with online purchases.
To answer that question, let’s take a closer look at the CRA’s “place of supply rule”.

The place of supply rule if you sell goods

If you sell a physical product, then generally speaking you charge the sales tax rate for the province the buyer lives in—IF you know their address. If they buy online, you know their address because they have to provide it so you can ship them their purchase. If they place an order over the phone, you would also need to get their address, again so you can mail them their parcel.

However, if you have a storefront and the buyer enters your store (let’s say they are on vacation), then typically you don’t need to ask their address, and so you also don’t need to worry about charging them based on where they live.

Examples

You own a jewelry store located in Calgary, Alberta.

Someone in Ontario buys a ring through your website. You have to collect their address so you can ship the ring to their home. You must charge them 8% retail sales tax (the tax rate in Ontario).
A purchaser in Nova Scotia places an order over the phone, and you have to collect their address so you can mail them their purchase. You must charge 10% sales tax (the rate in Nova Scotia).
A visitor from PEI visits your store in person. When they make a purchase, you have no reason to collect their address. Since you don’t have their address, you don’t worry about the place of supply—you charge them 0% sales tax (the tax rate in Alberta). However, if they purchase something and say they want you to ship it to their home in PEI, then you need their address, and you also have to then charge the PEI sales tax rate.

The place of supply rule if you sell services

The general rule for services is the same as that for goods—if you know the purchaser’s address (you collected it) then the sales tax rate for their province applies. However, if you didn’t collect their address, then you charge the sales tax for the province your business is located in.

Examples

You are a graphic designer based in Ontario.

Someone in Manitoba hires you to create 10 images for their website. You deliver the final images as attachments to an email. You had no need to collect the customer’s address, and don’t have it (you sent the images via email, not snail mail) so you charge the sales tax for the province you are located in (Ontario).
A customer in Nova Scotia hires you to create a website, including a contact page with the company’s phone number and street address. You have therefore collected the company’s address and must charge the sales tax rate for the province your customer’s business is located in.

So you can see why provincial sales tax is complicated!

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That’s it for this week. Next week we’ll go into a few more aspects of provincial sales tax such as when you have to start charging it, charging “taxes included”, input tax credits, and remitting the tax you’ve collected.

Cheers,
Tim

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