Transcript

Host: Welcome to the segment called What is the GST and HST?, part of the CRA’s GST/HST Information for a New Small Business video.

With me is John Kelly.

Welcome John.

Subject matter expert: Thank you Kathleen.

Host: Let’s start with the basics. What is the GST and HST?

Subject matter expert: The goods and services tax, or GST, is a tax that applies to the supply of most property and services in Canada.

Some provinces, referred to as the participating provinces, harmonized their provincial sales tax with the GST to create a harmonized sales tax, which is called HST.

Businesses that have a GST/HST registration number or that are required to have a GST/HST registration number are called registrants. Although the consumer pays the GST/HST, businesses who are registrants, are generally responsible for collecting the tax, holding the funds in trust and remitting the taxes collected to the government.

Host: What do you mean by "holding the funds in trust"?

Subject matter expert: Holding funds in trust means that you have to keep the funds apart from the operating funds of your business until you send them to the CRA.

Think of it this way, you’ve billed your customer one amount for you, and another amount on behalf of the Receiver General for Canada.

As a GST/HST registrant, you may be able to recover the GST/HST you paid or owe for eligible business expenses, which could offset some or all of the amounts you collected.

We’ll discuss this more in later segments of this video.

Host: Can you tell us why Canada has the GST and HST?

Subject matter expert: The GST and HST are part of a larger tax system, along with personal and corporate income tax, which together help to pay for many of the benefits Canadians enjoy.

Canada's tax system pays for roads, public utilities, education, health care, economic development, cultural activities, defence, and law enforcement, among other things.

Tax revenue is used to deliver benefits to lower- income families, charities, students, retirees, and persons with disabilities.

Tax revenue also provides social services such as old age security benefits, employment insurance benefits, the Canada child tax benefit, the working income tax benefit, and the universal child care benefit.

Host: Interesting. So what are the tax rates?

Subject matter expert: The provinces and territories where only the GST applies all use the same rate, which is set by the federal government.

The rate of the HST in participating provinces is based on a federal portion, the same as the GST rate, plus a provincial portion, which is set by the government of the participating province or territory.

For a complete list of rates by province and territory, go to the CRA webpage on GST/HST rates. The link is included in the Related links for this segment.

Host: Now, I was wondering, do the same rules apply to both GST and HST?

Subject matter expert: The GST and the HST generally follow the same rules, with some exceptions.

For the purposes of this video, unless said otherwise, the rules apply to both the GST and the HST.

Some of the segments in this video that deal with differences between the two are Interprovincial sales: what tax do I charge? and Providing point-of-sale rebates.

Generally speaking, though, supplies that are taxable under the GST are taxable under the HST.

Host: What do you mean by a supply?

Subject matter expert: When you provide a service, or sell or rent goods or property, you are making a supply. When your supply is subject to the GST/HST, it is a taxable supply.

Some supplies are exempt from the GST/HST.

Some goods and services are taxable at 0% and are referred to as zero-rated supplies.

Host: What do you mean by a taxable supply?

Subject matter expert: Taxable supplies are goods and services that are supplied in the course of a commercial activity and are subject to the GST/HST, including zero-rated supplies.

Host: You mentioned that some goods and services are exempt. Can you tell me what supplies are exempt?

Subject matter expert: There are quite a few, so I’ll just go over the more common ones.

They include: the sale of any used residential dwelling; long-term residential rentals; most medical procedures that are performed for health reasons by a licensed physician or dentist; child care services; legal aid services; most educational services; music lessons; most financial services; and some supplies made by charities and public sector bodies.

Host: Wow, there’s quite of few of them. Is there a complete list of exempt supplies I can look at?

Subject matter expert: Absolutely. For a list of exempt supplies, go to the CRA webpage on exempt supplies. The link is included in the Related links for this segment.

Host: Now the next thing you mentioned was zero-rated supplies. What does that mean?

Subject matter expert: Zero-rated supplies refer to a number of goods and services that are taxable at the rate of 0%.This means GST/HST is charged at 0%, and the purchaser does not pay any GST/HST on the supply of those goods and services.

Host: What’s the difference between something being exempt and being zero-rated?

Subject matter expert: As far as consumers are concerned, there really isn’t any difference.

In either case, the consumer does not pay the GST/HST.

However, there is a big difference for the registrant who provides the goods or services.

A registrant can claim an input tax credit to recover the GST/HST they paid on purchases and expenses made to provide zero-rated goods or services.

Registrants cannot claim input tax credits to recover the GST/HST they paid on expenses related to making exempt supplies.

If a registrant provides only exempt goods and services, they cannot register for the GST/HST. This means that registrants do not charge the GST/HST on the sale or supply of their exempt goods and services, and they cannot claim input tax credits for the GST/HST they pay on their purchases.

The process of claiming input tax credits on eligible GST/HST expenses will be covered in the segment of this video called What are input tax credits?

Host: So what supplies are zero-rated?

Subject matter expert: Zero-rated goods and services include: basic groceries such as milk, bread and vegetables; many agricultural products such as grain, raw wool and dried tobacco leaves; most farm livestock; most fishery products, such as fish for human consumption; prescription drugs and drug dispensing fees; certain medical devices, such as hearing aids; and exports of taxable goods and services.

Zero-rated supplies also include many transportation services where the origin or destination is outside Canada.

For more information, go to the CRA webpage on zero-rated goods and services. The link is included in the Related links for this segment.

Host: Thank you John.

This concludes the segment called What is the GST and HST?, part of the CRA’s GST/HST Information for A New Small Business video.

Thank you for watching.