Understanding sales tax and whether or not you should be charging it is something you need to know as a self-employed freelancer. Taxes are complicated, but we’ll make it simple – let’s start with the basics of sales tax:
What is sales tax in Canada?
Sales tax is a tax on goods and services in Canada imposed by the federal and the provincial government. There are three types of taxes on goods and services:
- i. GST: Goods and Services Tax (GST) collected by the federal government
- ii. PST and QST: Provincial Sales Tax (PST) and Quebec Sales Tax (QST) are taxes on goods and services collected by the provincial government. PST applies to BC, MB and SK, and QST applies to Quebec
- iii. HST: Harmonized Sales Tax (HST) is a combination of the provincial and the federal sales tax to create only one tax
How do I know if I need to charge sales tax as a freelancer?
There’s a simple formula for determining if you should be charging sales tax.
Sales Amount – As a small business owner, you won’t have to charge GST/HST until you hit $30,000 in sales. Whether that happens in a single quarter or over the span of four straight quarters (one year), $30,000 is the benchmark. Sales tax registration for businesses providing taxi and commercial ride-sharing services is mandatory, meaning they must charge HST from day one regardless of revenue.
How much sales tax do I charge as a freelancer?
Understanding how much sales tax you should charge depends on a few factors.
- Type of goods and services being sold
- Where the goods are being made
- Who you’re selling the goods to
Take a look at the CRA’s website for full details on when and how much sales tax you should be charging. For example, the HST rate in Ontario is 13% and in Alberta, it’s 5%, but there are rules and exemptions that should be followed.
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Nikhil Aggarwal is a CPA, CGA and a Tax expert. He strongly believes in transforming obstacles into opportunities and loves working with businesses, entrepreneurs and individuals. He has over 10 years of experience in accounting, taxation and technology. He has a proven track record of delighting the clients by finding over $20 million in tax savings. Nikhil has also completed Canadian In-depth Tax Course, which is the most comprehensive tax training program in Canada.