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Understand Canadian sales tax

If you'd like Avalara to file Canadian tax returns for your clients, review this article and keep a few things in mind before submitting a case:

  • Canada has only federal and provincial sales tax
  • Your client must already be registered with the Canada Revenue Agency and any provincial Revenue Agencies
  • Canadian tax returns must be reported in Canadian dollars, which means that Canadian transactions must be converted to Canadian dollars before they're imported to Managed Returns for Accountants
  • Some business expenses in Canada are eligible for input tax credits (ITC) that can be claimed on tax returns

Register to collect taxes in Canada

Before a business collects or remits sales tax in a jurisdiction, the business needs to register with that jurisdiction. Canada makes this easy by  having only federal and provincial jurisdictions.

The main types of sales tax to collect in Canada are:

  • Goods and Services Tax (GST): A federal-level tax administered by the Canada Revenue Agency.
    • GST is collected in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
    • Five participating provinces have harmonized their province-level taxes with the federal GST, resulting in a combined Harmonized Sales Tax (HST) rate. 
  • Harmonized Sales Tax (HST): A combined federal and province-level tax administered by the Canada Revenue Agency.
    • HST is collected in Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
    • Reports in Managed Returns for Accountants show the rates split between GST and HST, where HST is the province-level portion of the tax. When you report this to the Canada Revenue Agency, the GST and HST amounts must be combined and reported as a single HST rate.
  • Provincial Sales Tax (PST): Province-level taxes administered by the relevant province's Revenue Agency.
    PST is collected in British Columbia, Manitoba, Quebec, and Saskatchewan.

GST and HST are filed on the same return form, which is submitted to the Canada Revenue Agency. PST is administered separately by each province, which means that businesses must register and file separately for each province.

Make sure you've configured where your client collects tax in Canada. If your client needs help determining where they should collect tax, contact the Canada Revenue Agency or the Revenue Agency of the relevant province.

Provinces included under Canadian returns

The Canadian GST/HST is used to report and remit sales and tax that occurred at the federal level and in provinces that implemented the harmonized tax rate. These jurisdictions are:

Province Type PST GST HST Total tax rate
Alberta GST   5%   5%
British  Columbia GST + PST 7% 5%   12%
Manitoba GST + PST 7% 5%   12%
New Brunswick HST     15% 15%
Newfoundland and Labrador HST     15% 15%
Northwest Territories GST   5%   5%
Nova Scotia HST     15% 15%
Nunavut GST   5%   5%
Ontario HST     13% 13%
Prince Edward Island HST     15% 15%
Quebec GST + *QST *9.975% 5%   14.975%
Saskatchewan GST + PST 6% 5%   11%
Yukon GST   5%   5%

Provinces that require local reporting and remittance to be processed directly through them are as follows:

  • British Columbia
  • Manitoba
  • Quebec
  • Saskatchewan

When reconciling liabilities, you may run the Sales and Sellers Use Tax Jurisdiction Detail report in AvaTax and omit the sales and tax for BC, MB, QC, and SK.

File Canadian tax returns through Managed Returns for Accountants

Avalara requires Canadian tax returns to be reported and paid in Canadian dollars. If your client's Canadian transactions are reported in US dollars (or any other currency), the transactions will need to be converted to Canadian dollars before they're imported to Managed Returns for Accountants.

To schedule Canadian returns, submit a support case with the completed filing request document. After you submit the support case, a representative from Avalara will contact you to complete the process. Because the returns must also be funded in Canadian dollars, in some cases we may need to schedule a brief meeting with your client to discuss these funding requirements. 

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 a Canadian return in Managed Returns for Accountants, once Avalara has added the filing calendar, you can click into adjustment to add input tax credit or input tax refund into the schedule. Ensure adjustments are made before 5 pm on 10th of every month.

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