Most goods imported into Canada are subject to the goods and services tax (GST). GST is an excise tax equal to 5% which is payable in addition to any tariff duty imposed on an import shipment.
Currently, a harmonized sales tax (HST) of 13% applies in 3 Canadian provinces. The HST is comprised of the federal GST of 5% added to the provincial retail tax (RST) of 8%.
Important Notes on HST Collection
In any province where HST is payable, HST is not collected on commercial goods at time of importation. Importers of commercial goods subject to HST are expected to self-assess the HST payable amount.
Based on the Canada Customs Act, commercial goods means goods imported into Canada for sale or for any commercial, industrial, occupational, institutional or other like use.
Nova Scotia, New Brunswick plus Newfoundland and Labrador impose the HST at time of importation on imported casual goods. Casual goods are those imported into Canada other than commercial goods.
Two more Canadian provinces, British Columbia and Ontario, are scheduled to implement their own harmonized sales taxes on July 1, 2010. The HST collected from importers in British Columbia will be 12% while the HST for importers in Ontario will be 13%. Both HST amounts include the federal 5% GST rate plus the applicable provincial RST percentage.
Ontario Harmonized Sales Tax
Effective July 1, 2010, the total HST bill on imports where both GST and provincial RST are payayable amounts to 13% of a shipment’s value.
Qualified importers can expect credits from Canadian government that offset how much they have to pay for their monthly RST/GST account statements. An approved importer registered for RST/GST purposes, engaged in commercial activities and doing business in Canada may be entitled to claim full input tax credits.
Ontario HST Tax Exemptions
Basic groceries, prescription drugs, most health and education services as well as childcare represent point-of-sale items that will be exempt from the HST’s 8% provincial retail tax component.
Other point-of-sale exemptions include:
- Daily, weekly or monthly print newspapers
- Printed and audio books
- Children’s clothing and footwear excluding athletic shoes
- Safety-approved children’s car seats
- Diapers and feminine hygiene products
- Prepared food and non-alcoholic beverages that cost less than $4.
Note that these are proposed exemptions published on the Ontario government’s website as of November 12, 2009.
GST Tax Exemptions
Canada’s federal Excise Tax Act specifies imported commodities for which no GST is to be collected. These exceptions are categorized below as zero-rated goods, exempt supplies and non-taxable importations.
Zero-Rated Goods Free From GST
The buyer of zero-rated commodities pays no GST. However, the registered supplier of the good can claim an input tax credit for taxes paid on purchases used to create the zero-rated good.
Examples of imported zero-rated goods are
- Basic groceries
- Medical and assistive devices
- Prescription drugs and biological components.
All Canadian exports are zero-rated and therefore no GST is payable.
Exempt Supplies Free From GST
Importers do not claim GST tax credits on goods categorized as exempt supplies for which:
- GST-registered importers neither charge nor collect GST
- Point-of-sale buyers do not pay any GST for the goods.
Examples of exempt supplies from schedule V of Canada’s federal Excise Tax Act are:
- Health care services and supplies including diagnostic X-rays
- Approved educational services and supplies including instructional material
- Supplies from qualified charities.
Non-Taxable Importations Free From GST
Schedule VII of the Excise Tax Act specifies a list of goods that are free from GST including when they are imported into Canada.
These non-taxable importations include:
- Medals, trophies and other prizes won in competitions outside Canada
- Tourism promotional materials made available to the public free of charge
- Replacement parts under a warranty where the only charge is for shipping and handling
- Imported grain or seeds that is unpackaged, prepared or intended for sale as pet food or wild bird feed.
Harmonized sale taxes (HST) increase the initial financial responsibilities of Canadian importers who will be taxed at a higher percentage level for many imported commodities.
However, there are tax input credits for both the goods and services (GST) and retail sales tax (RST) components of the HST. Importers should consult a licensed Canadian customs broker for advice on how to calculate the proper amount of excise tax for specific imported commodities.
Sources
This article presents independent insights based on readings of the Excise Tax Act, the article “More Point of Sale Exemptions for the Ontario HST” on the Ontario government website newsroom, as well as the text “Introduction to Customs Administration and Procedures” (Canadian Society of Customs Brokers, 2009).
Daniel Workman - A senior business and finance writer who also does French translations, notably international trade and insurance materials.
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