Canada does have a value-added tax, though it isn’t called VAT in Canada. The federal Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) function exactly like a VAT: tax is collected at every stage of production and distribution, but a credit mechanism ensures the cost ultimately falls only on the final consumer. Both are governed by the federal Excise Tax Act and administered by the Canada Revenue Agency (CRA), with combined rates running from 5% to 15% depending on the province.1Canada Revenue Agency. Charge and Collect the GST/HST
The Three Tax Structures Across Canada
Every province pays the 5% federal GST. What differs is the provincial layer stacked on top, and Canada uses three different arrangements.
Alberta, the Northwest Territories, Nunavut, and Yukon charge only the flat 5% federal GST with no provincial sales tax.1Canada Revenue Agency. Charge and Collect the GST/HST
Five provinces blend the federal and provincial portions into a single Harmonized Sales Tax. Ontario’s HST is 13%. Nova Scotia’s HST dropped to 14% on April 1, 2025, after the province cut its provincial portion from 10% to 9%.2Canada Revenue Agency. Nova Scotia HST Rate Decrease – Questions and Answers New Brunswick, Newfoundland and Labrador, and Prince Edward Island each charge 15%.1Canada Revenue Agency. Charge and Collect the GST/HST Businesses in HST provinces remit one combined tax to Ottawa.
The remaining provinces run a separate provincial sales tax alongside the federal GST. British Columbia adds 7% PST, Manitoba adds 7% PST, and Saskatchewan adds 6% PST, all on top of the 5% GST. Quebec operates its own parallel system with the Quebec Sales Tax (QST) at 9.975% stacked on the 5% GST.3Revenu Québec. GST/HST and QST Businesses in these provinces calculate and remit two separate taxes to two different governments.
One point worth flagging: the provincial sales taxes in BC, Manitoba, and Saskatchewan are retail sales taxes, not value-added taxes. Only the federal GST and the harmonized HST (and Quebec’s QST, which is modeled on the GST) carry the credit mechanism that makes a tax a true VAT.
What Gets Taxed, Zero-Rated, or Exempted
Every good or service sold in Canada falls into one of three categories, and the category controls both what the seller charges and what credits the seller can claim back.
Taxable Supplies
Most goods and services are taxable at the standard rate for the province. Car repairs, hotel stays, accounting services, electronics, clothing, and restaurant meals all sit here. The seller charges the full GST or HST rate that applies where the supply is made.4Canada Revenue Agency. Type of Supply
Zero-Rated Supplies
Zero-rated supplies are technically taxable but at a rate of 0%. The customer pays nothing, yet the business can still claim back the GST/HST it paid on everything used to produce the supply. Basic groceries such as milk, bread, and vegetables are zero-rated, along with prescription drugs, certain medical devices like hearing aids, and most goods exported from Canada.4Canada Revenue Agency. Type of Supply That is why a grocery store can recover the tax on its rent and refrigerators even though shoppers pay no tax on most items in the cart.
Exempt Supplies
Exempt supplies sit outside the GST/HST system entirely. Long-term residential rents, most financial services, childcare for children under 14, and health and dental services performed by licensed practitioners are all exempt.4Canada Revenue Agency. Type of Supply The important difference from zero-rated: businesses making exempt supplies cannot claim input tax credits on their own purchases. A dentist absorbs the tax on dental supplies as a cost of doing business. A business making only exempt supplies generally cannot even register for the GST/HST.5Canada Revenue Agency. General Information for GST/HST Registrants
Input Tax Credits: The Mechanism That Makes It a VAT
The input tax credit (ITC) is what turns the GST/HST into a true value-added tax rather than a cascading sales tax. A registered business recovers the GST/HST it paid on business inputs by claiming ITCs on its return, then remits only the difference between the tax it collected from customers and the tax it paid on its purchases. If credits exceed collections, the CRA sends a refund.6Canada Revenue Agency. Input Tax Credits
Eligible purchases include office supplies, commercial rent, utilities, raw materials, professional fees, and most other costs tied to commercial activity. The core requirement is that the purchase must relate to making taxable or zero-rated supplies. Buy something to produce an exempt supply and no credit is available.6Canada Revenue Agency. Input Tax Credits
Some expenses give only a partial credit. Most businesses can claim just 50% of the GST/HST paid on meals and entertainment; long-haul truck drivers get 80%.7Canada Revenue Agency. Calculate Input Tax Credits – ITC Eligibility Percentage A few categories are blocked entirely, including club memberships for dining, recreational, or sporting facilities, and property or services bought solely for an employee’s personal enjoyment.8Canada Revenue Agency. General Restrictions and Limitations
Who Has to Register and Charge the Tax
A business must register for the GST/HST once its worldwide taxable revenue exceeds $30,000. The CRA measures this over the most recent four consecutive calendar quarters. Cross the threshold and the business is no longer a small supplier, with 30 days to apply for registration.9Department of Justice Canada. Excise Tax Act RSC 1985 c E-15 – Section 240 If the $30,000 line is crossed within a single quarter, registration is required by the end of the month following that quarter.10Canada Revenue Agency. When to Register for and Start Charging the GST/HST
Businesses below the threshold can register voluntarily, and many do. Without registration you cannot claim ITCs, so a startup spending heavily on equipment, inventory, or renovations can recover tax on those costs from day one by registering early.11Canada Revenue Agency. Register Voluntarily for a GST/HST Account The trade-off is that the business must then charge tax to its customers.
Foreign businesses are now caught too. Since July 2021, non-resident companies selling digital products or services to Canadian consumers, or operating platforms for short-term accommodation in Canada, must register under a simplified GST/HST framework. Simplified registrants collect the tax but cannot claim ITCs on their Canadian purchases.12Canada Revenue Agency. Register for the GST/HST – Digital Economy Businesses
Which Province’s Rate Applies
Because HST rates differ by province, the seller has to work out where a supply is “made” to know what rate to charge. For physical goods, the rate follows the destination: ship a product to a customer in Ontario and you charge 13%, regardless of where the business is located. For services, the default is the recipient’s Canadian address, if you have one in your records.13Canada Revenue Agency. GST/HST Rates and Place-of-Supply Rules A web designer in Alberta building a site for a Nova Scotia client should be charging 14% HST, not 5% GST.
The New Housing Rebate
Buying or building a new home is one of the largest taxable purchases most Canadians will make, and the GST/HST new housing rebate offsets part of the cost. The federal rebate equals 36% of the GST paid, up to $6,300, for homes with a fair market value below $450,000. Homes at $350,000 or less get the full rebate; between $350,001 and $449,999 it tapers off; at $450,000 or above the federal rebate disappears.14Canada Revenue Agency. GST/HST New Housing Rebate
The home must be newly built or substantially renovated and used as a primary residence by the buyer or a close relative. Only individuals qualify; partnerships and corporations do not. The buyer or their relation must be the first person to live in the home after construction or renovation began.14Canada Revenue Agency. GST/HST New Housing Rebate
A newer program extends eligibility to first-time buyers of homes valued up to $1,500,000. The purchase agreement must be signed on or after March 20, 2025, and before 2031, with construction substantially completed before 2036. The buyer must be a first-time home buyer when ownership transfers and must be the first person to occupy the home.14Canada Revenue Agency. GST/HST New Housing Rebate Ontario and Nova Scotia offer their own provincial new housing rebates on top of the federal amount.