Summary
Taxes in Canada
The sales tax structure of Canada is unique, as it does not have a single national sales tax system. Instead, it operates a multi-layered structure with:
A federal value-added tax (GST — Goods and Services Tax)
Provincial sales taxes (PST, QST, or HST), depending on the province or territory
GST (Goods and Service Tax): This is a national-level tax, which applies to every state of Canada. It is charged on most goods and services, including imports. This tax is administrated by the CRA (Canada Revenue Agency).
PST (Provincial and Territorial Sales Tax): This tax is applied on the sales and purchase of taxable goods and service in a province where this tax structure is supported. This tax will be combined with GST and applied as a group tax (GST + PST). It is administrated by its province's finance or revenue department who enforces this tax system.
QST (Quebec's Sales Tax): Quebec is a province in Canada that administers its own tax of 9.975%. It operates similarly to GST, but separately administered by Revenue Québec. Businesses in Quebec must register for both GST and QST accounts.
HST(Harmonized Sales Tax): A combined tax that merges GST and PST into one HST, jointly administered by the CRA. HST is applied in provinces usually known as “Participating Provinces.” These provinces participate in the HST system administered by the Canada Revenue Agency (CRA), instead of running their own separate provincial sales tax systems. Businesses in these provinces only need one registration, one return, and one remittance for both federal and provincial tax.
HST provinces: New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario, and Prince Edward Island.
Tax eligibility
You must register your business for GST/HST if:
Your business makes taxable sales exceeding 30,000 CAD in a 12-month period (small supplier threshold)
You are a non-resident selling into Canada (e.g., SaaS, online goods)
Tax terminologies
| Field | Description |
|---|---|
| Tax Name | The name you would like to assign to a particular tax. For example, Ontario can be the name assigned to the sales tax for the province of Ontario. |
| Tax Agency | Refers to the organization in charge of collecting taxes in a specified region. For example, the BC Ministry of Finance is the tax agency responsible for British Columbia province. |
| Tax Registration Number (TRN) | The alpha-numeric number that is for provided for businesses registered under particular Tax Agency. For example, British Columbia Ministry of Finance follows a 8-digit alpha-numeric tax registration number. |
| Tax Rate | The tax rate for a particular province in percentage. For example, the PST rate in Vancouver is 7%. |
| Compound Tax | It refers to the tax that is calculated on top of another tax — that is, the second tax is applied to the total price including the first tax. If your province collects PST and GST as group tax, this PST will be calculated on top of the total invoice value including the GST. Saskatchewan’s PST (administered by the Saskatchewan Ministry of Finance) collects compound. |
| Exemption Reason | An exemption reason is the justification provided by tax authorities for exempting an item or an individual from sales tax. For example, registered charities. |
Tax Configurations
If you want to apply sales tax on your sales and purchases, you need to enable the sales tax option in Zoho POS and configure it based on your business requirement.
For example, if you run a supermarket in Quebec City, and sell to customers locally, you must enable the tax module and set up the GST & Quebec Sales Tax with respective TRN number and effective date. Once configured, the tax will be activated and automatically applied to your sales orders and invoices.
Enable and configure tax
Create new tax
Create your taxes based on your sales, as sales tax is charged based on where your customer receives the goods or services.
You need to create a tax with the required information, such as the name, tax agency, and rate.
Create tax group
Some provinces have more than one tax structure, requiring businesses to collect national tax (GST) in addition to the tax rate enforced by the local authority (PST). In these provinces, you need to create the local tax and combine it with GST to form a Group tax.
For example, the province of Manitoba applies a 5% PST administered by Manitoba Finance, Taxation Division. Since Manitoba is not part of the HST system, businesses must collect both GST and PST on every sale, which are grouped together and added to the invoice.
Create tax agencies
Tax agencies are government agencies that administer the sales taxes for their respective provinces.
For example, the BC Ministry of Finance is the tax agency responsible for the province of British Columbia.
Create tax exemptions
Certain items and customers may be exempt from sales tax under Canadian tax laws. To ensure these exemptions are applied correctly, you should create a tax exemption and associate it with the applicable items or customers.
For example, some printed books are exempt from taxes. In addition, all goods that are donated by charities are completely exempt from taxes.
Actions on Taxes
Modify tax
If a tax agencies updates a tax rate, the corresponding changes should be reflected in the individual tax or tax group configurations to ensure compliance and avoid potential penalties.
Inactive tax
If you don't require a tax or tax group for a particular period of time, you can disable the tax/tax group temporarily and mark it active when required.
Delete tax
If you no longer require a particular tax or tax group, you can delete the tax/tax group.
Note
You can only delete the tax rates if there is no associated transactions.
Tax Rules
Tax Rules is an advanced automation flow that automatically applies taxes to sales and purchase transactions based on your tax configurations. By default, we have added basic tax rules that are applicable to the different provinces and territories of Canada. You can map these tax rules to your items and customers so that the correct tax rates are applied automatically to invoices and sales orders.
Note
For sales transactions, taxes are applied based on the place of supply. For purchase transactions, taxes are applied based on your business address.
New tax rule
In certain situations, the default tax rules may not match the specific tax requirements of your business. When this occurs, it becomes necessary to create your own custom tax rule and assign it to the appropriate items and customers so that taxes are applied accurately during sales and purchase transactions.
Scenario 1: Imagine you run a retail store in Vancouver, British Columbia that sells groceries, wine, clothing, and other consumer goods. Under the standard BC tax structure, most retail products are taxed at a combined rate of 12%, which includes 5% GST and 7% PST. However, alcoholic beverages such as wine are subject to a higher provincial sales tax of 10% instead of the standard 7%. This means the default 12% tax rule does not apply to wine sales. Since the correct tax rate for wine is 5% GST plus 10% PST, totalling 15%, a separate tax rule must be created and mapped specifically to wine items to ensure the appropriate tax is charged.
Scenario 2: Imagine you run a store in Saskatchewan that sells both basic groceries and prepared foods. In Saskatchewan, basic groceries are exempt from both GST and PST, meaning items such as raw carrots are tax-free. However, once those same groceries are transformed into prepared food, the tax treatment changes entirely. Prepared foods are fully taxable at 5% GST and 6% PST. Because the default grocery rule would treat carrots as exempt, it would not correctly apply tax when those carrots are sold as a prepared food. In cases like this, you must create a unique tax rule for prepared foods and map it to the relevant items.
In both scenarios, the standard tax rules do not accurately capture the tax requirements for certain products due to provincial variations or special tax classifications. Creating and assigning custom tax rules ensures that your invoices and sales orders always apply the correct tax rates based on the specific nature of the items being sold.
To add a new tax rule
If you are creating a custom tax rule for customers/vendors, select the Association Type as Contact based and select the required details in their respective options.
Item tax preferences
You can set the tax preferences for an item at the time of its creation. By default, sales taxes are applied based on the customer’s address. However, if you have exception cases where an item needs to be tax exempt or requires a custom tax rule, you can make those changes during the item creation process.
To map/exempt taxes for purchase transaction, click the drop-down next to the Purchase Tax Rule and choose the option.
Customer tax preferences
You can also set a tax preference for your customers. For every transaction, the customer tax preference is preferred over the tax preference of the items included in the transaction.
For example, if you create an invoice for a tax-exempt customer that includes taxable items, the invoice will become non-taxable because the customer is exempt from taxes. Non-taxable items, on the other hand, are exempt from taxes, even if the customer is taxable.
The tax rates will be automatically applied to transactions based on your default sales tax rule. However, if you have exception cases where a customer needs to be tax exempt or requires a custom tax rule, you can update the tax rule when creating the customer.
