If you’ve ever bought a product or service in Canada, then you’re all too familiar with the sales tax you have to pay on top of the ticket price. But are you familiar with ‘VAT tax’?
Let’s take a closer look at the VAT number in Canada, how much you’re paying for it, and how it works.
Key Points On VAT Numbers In Canada
- In Canada, VAT is referred to as the Goods and Services Tax (GST).
- All businesses in Canada are assigned a VAT (GST) number by the CRA for tax purposes.
- The standard VAT rate (GST rate) in Canada is 5%.
- Consumers who’ve shopped abroad may be entitled to a VAT refund, depending on the country.
What Is Value Added Tax (VAT) In Canada?
A VAT number is a type of sales tax that is applied to many goods and services. It is imposed on products at each stage of production, from the time when materials are purchased to develop such products up until the point of sale at the consumer level. That means every person or company involved in the production, supply, distribution, and sale of a product will eventually pay a share of the item’s VAT.
It’s important to distinguish a VAT number in Canada from the actual sales tax charged when a person purchases a product or service, as they differ.
VAT numbers consist of up to 15 characters, with the first 2 letters indicating the country. For Canada, the country code is CA.
Does Canada Have Value Added Tax (VAT)?
Yes, Canada has a VAT, though it’s referred to as the Goods and Services Tax (GST). Right now, the rate of GST is 5%, which is applied to most goods and services in Canada, with some exceptions.
In some provinces, like Ontario, the VAT is referred to as Harmonized Sales Tax (HST), a combination of GST and Provincial Sales Tax (PST). And in Quebec, it’s called Quebec Sales Tax (QST).
What Are The VAT Numbers In Canada?
As mentioned, the current GST rate in Canada is 5%. Each province has its own tax rate for each type of sales tax, as follows:
- 5% GST only in Alberta
- 9.975% QST in Québec (+ 5% GST)
- 13% to 15% HST (combined GST + PST) in Ontario, New Brunswick, Nova Scotia, Newfoundland and Labrador, and PEI
- 6% to 8% PST in BC, Saskatchewan, and Manitoba (+ 5% GST)
How Does VAT Work?
VAT is collected at every phase of the production of goods. It is charged whenever value is added to a product. Ultimately, the consumer who buys the product will pay the VAT at the end of the cycle.
For example, let’s say a manufacturer sells a pair of shoes to a retailer for $100 with a 12% VAT rate. In this case, the retailer owes $12 VAT to the government.
The retailer would pay the manufacturer $112, then claim the $12 VAT from the government. In this way, the retailer does not actually pay the VAT when all is said and done.
The retailer then sells the shoes to a customer for $180, and the customer pays the retailer $21.60 VAT (at the 12% VAT rate). However, the retailer only pays $9.60 in VAT because the other entities involved up to this point have already paid the rest. The retailer is not required to pay for VAT costs that have already been paid.
This is a very simplified example, as real-life instances are typically much more complex. The key takeaway is that the entire VAT pie is broken down amongst all entities involved in the supply chain.
What’s The Difference Between VAT Vs. Sales Tax In Canada?
Unlike conventional sales taxes that are charged at the point of sale to the consumer, VAT is collected at all phases of the supply chain. At each stage where value is added, VAT is applied to the markup between production costs and the selling price.
What Goods Are Subject To VAT In Canada?
In Canada, VAT applies to a wide range of taxable goods and services. Here are some common examples:
- Sale of new homes
- Sale and rental of commercial real estate
- Car repairs
- Clothing and footwear
- Most advertising services
- Legal and accounting services
- Hotel accommodations
- Barber and hairstyling services
- Taxi and ride-sharing services
- Soft drinks, candies, and potato chips
Which Goods And Services Are Tax-Exempt In Canada?
Certain goods and services are either zero-rated (taxed at 0%) or fully exempt from GST/HST. Here are a few examples:
- Basic groceries
- Agricultural products
- Most farm livestock
- Fishery products intended for human consumption
- Prescription medications and drug dispensing services
- Medical devices (i.e. hearing aids)
- Legal aid
- Child care services
- Most medical, dental, and health care services
- Insurance premiums
- Sale of previously occupied residential housing
- Financial services offered by banks and institutions
- Properties owned by charities and public institutions
- Goods and services provided by government bodies
- Domestic ferry services
- Long-term residential rentals and condo fees
- Many educational services
VAT Number Registration
Businesses are required to register for a GST number in Canada if they make at least $30,000 in the sale of taxable supplies in a quarter or a full calendar year. If sales are under $30,000, registration for GST is voluntary.
Special rules for GST registration apply to certain entities, such as taxi companies, charities, and non-resident book and magazine vendors and publishers who are in Canada temporarily.
What Is A VAT Refund?
If you’ve shopped abroad, you may be entitled to the VAT taxes you’ve paid on your purchases. The rules surrounding VAT refunds differ in each country, so it’s important to check with the country where you purchased a product to find out how these refunds are handled.
In order for you to get a VAT refund, you’ll need to get a copy of your receipt from the merchant, then complete the retailer’s forms. Before leaving the country, customers must redeem their forms with customs officials to be stamped.
Customers can hand in the form at a specific booth at the local airport and receive their refund right away. Do note, in order to receive a VAT refund, a minimum amount usually must be spent on a product or service. The purchase requirements differ in countries all over the world.
How To Get A VAT Refund
To get refunded on VAT taxes spent abroad, follow these steps:
Step 1: Fill Out An Application Form
Ask the retailer for a VAT tax refund application form and fill it out. The retailer may ask for ID to verify that you are a non-resident.
Step 2: Visit Customs
Present your VAT form, receipt, tax-free goods, and your passport to a customs official at the airport.
Step 3: Get Your Refund
If you’re eligible, the customs official will approve and stamp your form. You can then visit a kiosk at the airport for an immediate refund, or mail your form once you get home and wait for your refund to be mailed to you.
Final Thoughts
If you’re a consumer in Canada, you’ll be the one flipping the bill for the full VAT tax. But if you’re travelling abroad, you may be entitled to a VAT refund. And if you’re a business, you may need to register for a VAT number in Canada if you see significant sales.
