Skip to content
× FreshBooks App Logo
Official App
Free - Google Play
Get it
You're currently on our CA site. Select your regional site here:
5 Min. Read

How to Calculate HST for Small Businesses

How to Calculate HST for Small Businesses

When you’re running a small business it can be quite confusing to wrap your head around all of the financial information when it comes to taxes.

However, it’s a necessary evil and understanding what taxes you have to pay is an important part of running a business. 

One of the taxes that Canadian business owners have to pay is HST.

But what exactly is HST? We’ll take a closer look at the definition and help you to figure out how to calculate HST for small businesses.

Here’s What We’ll Cover:

What Is HST?

How Does HST Work?

When Did HST Come Into Effect?

How Do You Calculate HST?

Are There Any Exceptions?

Key Takeaways

What Is HST?

Harmonized sales tax, or HST, is a consumption tax that is paid by local consumers and businesses in Canada. 

It works by combining the nation’s federal goods and services tax and the other various provincial sales taxes. 

At the current time of writing, there are five Canadian provinces that use the HST. These provinces are:

  • Newfoundland & Labrador: Joined in 1997
  • New Brunswick: Joined in 1997
  • Nova Scotia: Joined in 1997
  • Ontario: Joined in 2010
  • Prince Edward Island: Joined in 2010

Though some disagree with the idea of a harmonized tax system, some people argue that it improves the competitiveness of Canadian businesses. This is through simplifying their administrative costs which in turn leads to lower prices for consumers. 

How Does HST Work?

The HST is paid by consumers when they come to the point of sale. The seller will collect the tax proceeds by adding the current HST rate to the cost of the cost of the goods or services. They would then pass on the collected tax to the tax division of the federal government 

This division is known as the Canada Revenue Agency, or the CRA. The CRA then later allocates the provincial portion of the collected tax to the respective province’s form of government. 

When Did HST Come Into Effect?

HST was introduced to Canada in 1997. Before HST took effect, Canadian sales taxes were divided into two separate categories. This was the federal sales tax, or GST and the provincial sales tax, or PST. 

Each province had its own rates which resulted in significant differences in the sales taxes across Canada. The idea behind HST was to streamline the tax system by combining them into a single consistent tax across all provinces. 

How Do You Calculate HST?

In the five provinces that charge HST, you would charge the appropriate percentage of HST on goods and services. 

Combining these with GST, the current rates are:

  • Newfoundland & Labrador: 15%  
  • New Brunswick: 15%
  • Nova Scotia: 15%
  • Ontario: 13%
  • Prince Edward Island: 15%

So for example, let’s say that you are running a boutique clothing store and sell a skirt for $39.99.

If you were selling it in Newfoundland, you would calculate the price as:

Skirt: $39.99

HST @ 15%: $6.00

Total Price: $45.99

Whereas if you were selling the same skirt in Ontario, then the price would be:

Skirt: $39.99

HST @ 13%: $5.20

Total Price: $45.19

Are There Any Exceptions?

There are currently four exceptions for this tax ruling. They are:

  • Exceptions for Small Suppliers
  • Exceptions for Exempt and Zero-Rated Goods and Services
  • Selling Goods and Services to Another Province or Territory
  • Selling Goods and Services Outside of Canada

Exceptions for Small Suppliers

If your business qualifies as a small supplier, then there are some provinces where you won’t have to add any taxes. But be sure to check if your province runs the exemptions. 

To qualify as a small supplier, your total taxable bu8siness revenue before expenses must be $30,000 or less in the past financial year.

If this is the case, then you do not have to register to collect and pass out GST or HST. However, you may want to do it anyway so that you can recover GST or HST on expenses paid through your input tax credits. 

Exceptions for Exempt and Zero-Rated Goods and Services

There are some forms of goods and services that are exempt or zero-rated. This means that they do not charge HSt on the customer invoice. Follow this government link to see what goods and services are considered exempt or zero rated. 

Selling Goods and Services to Another Province or Territory

If you are selling your goods and services to a province or territory outside of your own, then you will charge GST or HST. But this charge will be based on the rate in the destination, not your territory. 

So for example, let's say you are in Labrador where the rate is 15% but are selling to Ontario. In this case, you will then charge Ontario’s HST rate of 13%, not Labrador's of 15%. 

Selling Goods and Services Outside of Canada

You do not need to charge GST or HST on anything shipped out of Canada to another country. However, you may have to pay export or excise taxes if you are selling products such as cigarettes and alcohol. Products such as these are subject to excise taxes from your provincial and federal government. 

Key Takeaways

Understanding what taxes you do and don’t have to pay is a vital part of running your small business. 

The harmonized sales tax is a relatively easy form of tax to figure out, as long as you have your percentages correct then there should be no major issues. 

If you are struggling to keep up with your numbers, then consider utilising accounting software such as FreshBooks. Our accounting solution is here to support you and your small business.

Are you looking for more business advice on everything from starting a new business to new business practices? 

Then check out the FreshBooks Resource Hub.