A Guide to GST/HST for Non-Residents Doing Business in Canada

1. Introduction: Understanding Canada’s Sales Tax System

For non-resident businesses looking to sell goods or services in Canada, understanding the country’s Goods and Services Tax (GST) and Harmonized Sales Tax (HST) system is essential. Canada has a unique sales tax structure that varies by province, and failure to comply with tax obligations can lead to penalties, unexpected tax bills, or business disruptions.

Unlike some other countries that apply a uniform sales tax, Canada’s system includes GST, HST, and in some provinces, a separate Provincial Sales Tax (PST). Whether your business is selling physical products, digital services, or operating through an e-commerce platform, you may need to register for GST/HST, charge customers the correct tax rate, and remit payments to the Canada Revenue Agency (CRA).

Many non-resident businesses assume they don’t have to collect GST/HST if they don’t have a physical presence in Canada. However, new tax rules now require many foreign businesses to register, even if they operate solely online. Understanding your tax obligations will help you avoid compliance issues and ensure smooth operations in the Canadian market.

2. Does Your Business Need to Register for GST/HST?

Not all non-resident businesses are required to register for GST/HST, but many will find that they must, depending on the nature of their sales in Canada. The general rule is that if your business sells taxable goods or services in Canada and earns $30,000 CAD or more in revenue within four consecutive quarters, you are required to register for, collect, and remit GST/HST to the CRA.

Some cases where a non-resident must register for GST/HST include:

• Selling physical goods in Canada, even if shipped from another country.
• Providing taxable services to Canadian customers.
• Selling digital products or subscriptions to Canadian consumers under new tax laws.

However, there are exemptions. Some businesses selling zero-rated goods, such as basic groceries, medical devices, or certain exports, may not have to charge GST/HST, even if registered. Also, businesses selling only to GST/HST-registered Canadian businesses (B2B transactions) may not need to collect tax, as customers can self-assess their GST/HST obligations. Understanding these rules ensures that businesses avoid unnecessary tax liabilities while staying compliant.

3. GST/HST Rates Across Provinces: What You Need to Know

Unlike in some countries where there is a single national sales tax rate, Canada applies different GST/HST rates depending on the province or territory where the sale occurs. Non-resident businesses must be aware of these varying rates to ensure they charge customers the correct amount.

Here’s a breakdown of GST/HST rates by province:

• 5% GST only: Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, Yukon.
• 13% HST: Ontario.
• 15% HST: New Brunswick, Newfoundland and Labrador, Nova Scotia, Prince Edward Island.

For example, if a U.S.-based e-commerce store sells a product to a customer in Ontario, they must charge 13% HST, while a sale to a customer in Alberta would only require 5% GST. Mistakes in applying the correct tax rate can lead to CRA audits, penalties, or financial losses.

Understanding the destination-based tax system is key. Non-resident businesses should use accounting software that calculates the correct tax rate automatically based on the customer’s location to avoid errors and ensure compliance with Canadian tax laws.

4. The GST/HST Registration Process for Non-Residents

Registering for a GST/HST account as a non-resident business is not as complex as it may seem, but it does require careful attention to detail. The process can be done remotely and typically takes a few weeks to complete.

Steps to register for a GST/HST account:

1. Determine if registration is required based on revenue, business activities, and customer location.
2. Complete Form RC1, Request for a Business Number (BN), which can be submitted online, by mail, or by fax to the CRA.
3. Provide required documents, including business identification, details about the company’s activities in Canada, and banking information for tax remittances.
4. Receive a Business Number (BN) and GST/HST account number, which will be used for tax filings and remittances.

Non-resident businesses may also be required to appoint a resident representative or provide a security deposit in some cases. Once registered, businesses must ensure they charge GST/HST correctly, file returns on time, and keep proper tax records. Proper registration helps businesses operate legally in Canada and avoid unnecessary tax complications.

5. Collecting GST/HST on Sales to Canadian Customers

Once a non-resident business is registered for GST/HST, it is responsible for charging and collecting the correct sales tax on transactions with Canadian customers. This applies to both physical goods and digital services, and the amount of tax charged depends on the customer’s location, not the business’s.

Failure to collect GST/HST properly can lead to significant tax liabilities. If a business does not charge the correct amount, the CRA may require them to pay the missing tax out of pocket. To avoid mistakes, businesses should use automated accounting software that calculates and applies the correct GST/HST rate based on the customer’s address.

6. Filing and Remitting GST/HST as a Non-Resident Business

After collecting GST/HST from Canadian customers, non-resident businesses must remit the tax to the CRA by filing a GST/HST return. The frequency of filing depends on the business’s annual taxable revenue:

• Businesses with less than $1.5 million in revenue can file annually.
• Businesses earning between $1.5 million and $6 million must file quarterly.
• Businesses with over $6 million in revenue must file monthly.

7. Input Tax Credits (ITCs): Claiming Back GST/HST Paid

One advantage of registering for GST/HST is that businesses can recover some of the tax they pay on business-related purchases through Input Tax Credits (ITCs). Eligible ITCs include GST/HST paid on:

• Business supplies and inventory.
• Marketing and advertising services in Canada.
• Office equipment and digital tools used for operations.
• Shipping and logistics costs for delivering products to Canadian customers.

8. GST/HST for E-Commerce and Digital Services Providers

In recent years, Canada has introduced new tax regulations to ensure that foreign e-commerce and digital services providers comply with GST/HST laws. Non-resident businesses selling to Canadian customers online must now register for and collect GST/HST, even if they don’t have a physical presence in Canada.

Examples of taxable digital services include:

• Streaming services (movies, music, e-books, and digital content).
• Software-as-a-service (SaaS) subscriptions.
• Online courses, e-books, and training programs.
• Remote consulting services provided to Canadian clients.

9. Avoiding Common GST/HST Mistakes as a Non-Resident

Common errors include failing to register on time, charging the wrong tax rate, and not properly tracking Input Tax Credits (ITCs). Keeping detailed financial records and using automated tax tools can help businesses stay compliant and avoid costly penalties.

10. Conclusion: Navigating GST/HST Successfully as a Non-Resident Business

Understanding and complying with Canada’s GST/HST system is crucial for non-resident businesses that sell to Canadian customers. Staying informed, using automated tools, and consulting a CPA specializing in cross-border taxation can ensure compliance and smooth business operations in Canada.