Your firm may be able to calculate taxes and file returns for both federal and local sales tax in Canadian provinces. If so, contact your compliance team if your client would like to set up Canadian returns. Keep a few things in mind that make Canadian sales tax unique:
- Canada has only federal and provincial sales tax
- Provinces with Harmonized Sales Tax have combined federal and provincial sales taxes for easier registration and filing
- Canadian tax returns must be reported in Canadian dollars, which means that Canadian transactions must be sent in Canadian dollars
- Some business expenses in Canada may make you eligible for input tax credits (ITC) on your tax returns
Register to collect taxes in Canada
Before your business collects or remits sales tax in a jurisdiction, you need to register with that jurisdiction. Almost everyone has to pay the GST/HST on all taxable supplies of property and services.
The main types of sales tax to collect in Canada are General Sales Tax (GST), Harmonized Sales Tax (HST), and Provincial Sales Tax (PST). For Provincial Sales Tax (PST) there are only 4 provinces that require their own form. GST and HST are filed on the same return form, which is submitted to the Canada Revenue Agency.
Check to see if your system makes these calculations for your client once they are set up to collect and remit tax. It may or may not automatically determine the jurisdictions in which your client needs to collect tax. If you need assistance, contact the Canada Revenue Agency, the Revenue Agency for the relevant province, or one of your firm's tax professionals.
File Canadian tax returns
Canadian tax authorities require Canadian tax returns to be reported and paid in Canadian dollars. If Canadian transactions are sent to your system in US dollars (or any other currency), the transactions are not converted to Canadian dollars, which means that the returns are filed with incorrect numbers. To prevent this, either your business application needs to send Canadian transactions in Canadian dollars, or you need to import Canadian transactions into your system manually.
Schedule Canadian returns with the name of the company to file for and your specific filing terms and fill out a funding power of attorney document. Avalara can't file late or amended returns in Canada, so make absolutely sure that you meet the filing deadlines for your Canadian returns.
If you're filing Canadian returns on your own, use the Sales and Sellers Use Tax Jurisdiction Detail Combined View by Taxing Jurisdiction report in Managed Returns for Accountants to find totals for harmonized and provincial sales tax.
Use Canadian input tax credits (ITC)
Input tax credits are given to businesses to recover taxes paid on purchases related to business activity. The Canada Revenue Agency has more information about input tax credits, including how to determine if your client is eligible for them and what records and receipts they need to use to support their claim.
To add input tax credits to your Canadian filing in Managed Returns, submit a support case. Include the credit amounts, and let us know which company is claiming each credit.