The goods and services tax (GST) and the Québec sales tax (QST) are generally collected in Quebec when most goods and services are sold or provided. The harmonized sales tax (HST) replaces the QST and GST in some “participating” Canadian provinces.
1. Notions of purchaser and supplier
As a general rule, the purchaser of a taxable supply must pay the tax to Her Majesty the Queen of Canada or the Quebec Revenue Agency (“Revenu Québec”). Both the GST and the QST is administered by Revenu Québec in Quebec. In most cases, the purchaser pays the GST/HST and the QST to the supplier, who acts as a mandatary (agent) of the state and is duty-bound to collect the tax charged on the supply sold.
2. The tax applies to taxable supplies sold in Canada/Quebec
There are two categories of supplies: goods and services. A good is broadly defined as any movable or immovable, corporeal or incorporeal property, as well as any right and share, but does not include money. A service is defined as anything that is neither property nor money nor provided by an employee in the course of his employment.
Not all supplies are subject to the tax; the supply must be provided in the course of a commercial activity. A commercial activity includes not only a business, but also an adventure or concern, to the extent that there is a reasonable expectation of profit.
In general, the supply must be provided in Canada to be subject to the GST/HST and in Quebec to be subject to the QST.
As a general rule, any person who provides a taxable supply in the course of a commercial activity in Canada must be registered in the GST/HST register with the Canada Revenue Agency and the QST register with Revenu Québec.
There are certain exceptions to the obligation to register, including the one for small suppliers. Businesses with total sales of less than $30,000 per year (including sales by associated companies) are considered small suppliers, and only need register once they have exceeded this threshold.
4. Recovery of the tax paid
A person who carries out commercial activity is entitled to recover the tax paid to acquire goods and services used to produce taxable or zero-rated supplies by claiming an input tax credit (ITC) for the GST/HST and an input tax refund for the (ITR) for the QST.
A business must be registered during the reporting period in which the taxes were paid in order to claim ITCs and ITRs for taxable or zero-rated goods and services acquired in the course of a commercial activity.
ITCs and ITRs are generally claimed when filing the GST/HST and QST returns for the reporting period in which the supplies were made. More specifically, the registrant must calculate the net tax, i.e., the amount of tax paid and the amount of tax collected. If the amount of tax paid is higher than the amount collected, the registrant can claim a refund (ITC/ITR) from the tax authority concerned.
5. Exempt and zero-rated supplies
Exempt supplies are not subject to GST/HST or QST. Moreover, a registrant cannot claim ITCs or ITRs for taxable purchases made to produce an exempt supply. Exempt supplies are set out in Schedule V to the ETA for the GST/HST and Chapter III of the AQST for the QST, and include, among others, the sale of certain residential complexes that are not new, the provision of most health, education, childcare and legal aid services, and the provision of most financial services.
Zero-rated supplies are ideal for both the supplier and the purchaser because not only are they not subject to GST or QST, but they entitle the registrant to ITCs and ITRs for taxable purchases made to produce the zero-rated supply. Zero-rated supplies are set out in Schedule VI of the ETA for the GST/HST and Chapter IV of the AQST for the QST and include the supply of basic groceries, certain medical and assistive devices, and certain exported supplies.