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Canadian sales tax and returns

This article applies to:Avalara Returns

Avalara can calculate your taxes and file your returns for both federal and local sales tax in any province in Canada. Keep a few things in mind that make Canadian sales tax unique:

  • Canada only has federal and provincial sales tax
  • Provinces with Harmonized Sales Tax have combined federal and provincial sales taxes for easier registration and filing
  • To file Canadian tax returns in Canadian dollars, Canadian transactions must be sent to AvaTax in Canadian dollars
  • You can't set up Canadian returns directly in Managed Returns. Submit a case to have us do it for you.
  • 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. Canada makes this easy by only having federal and provincial jurisdictions, without the cities, counties, and special taxing jurisdictions that some US states have.

The two main types of sales tax that you may have to register to collect in Canada are General Sales Tax (GST) and Provincial Sales Tax (PST). GST is levied by the federal government everywhere in Canada, while PST is set at different rates by each individual province (except Alberta, which has no province-level sales tax on most purchases). In Quebec the regional tax is called Quebec Sales Tax, and in Manitoba it's called Retail Sales Tax, but functionally these are similar to the other provinces' Provincial Sales Tax. Each province charges different rates for different products and services.

Some provinces combine GST and PST into one tax, called Harmonized Sales Tax (HST), which is collected by the federal Canada Revenue Agency and then remitted from them to the provinces. When you register to collect and remit GST to the federal government, you're also registered to collect HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island.

In each province where your business collects and remits sales tax you need to collect and remit only GST, both GST and PST, or only HST. AvaTax makes these calculations for you once you set up where you collect and remit tax, but it can't automatically determine what jurisdictions you need to collect in. For that, you need to do the research yourself. If you need assistance, contact the Canada Revenue Agency, the Revenue Agency for the relevant province, or a tax professional.

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

Canadian tax authorities require Canadian tax returns to be reported and paid in Canadian dollars. If you send Canadian transactions to AvaTax in US dollars (or any other currency), Managed Returns doesn't convert the transactions to Canadian dollars and your returns are filed with incorrect numbers. To prevent this, either your business application needs to send Canadian transactions to AvaTax in Canadian dollars or you need to import Canadian transactions into AvaTax manually.

To schedule, Canadian returns in Managed Returns, submit a case with the name of the company you want us to file for and your specific filing terms. For your first filing with Avalara, Canadian returns must be requested by the 20th of the month of your first tax period.

After you've submitted your request to add Canadian returns to be filed by Avalara, Avalara provides you with a Funding Power of Attorney (POA) document that you need to fill out. This is separate from your usual funding power of attorney form, because Avalara requires that all Canadian returns be paid using Canadian currency. Unlike US returns, Avalara cannot debit Canadian tax funding and this funding must be wired in CAD currency.

If you're filing Canadian returns on your own, use the Canada HST Summary tax return report in AvaTax to find totals for harmonized and provincial sales tax.

Add input tax credits to your Canadian returns

Input Tax Credits (ITC) 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, the expenses allowed for input tax credits, including how to determine if you're eligible for them and what records and receipts you need to use to support your claim.

To add input tax credits to your Canadian filing in Managed Returns, add the amount of your credits in the Return details and adjustments section of your Quebec or GST/HST returns.

  1. Go to Returns > Approve returns.
  2. Locate the region where you want to adjust tax liabilities and select Show details.
  3. Locate the return you want to adjust and then click the ellipsis button (...) adjacent to the jurisdiction and select Details and adjustments.
  4. Select Add adjustments and enter the input tax credit amount as a negative figure.
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