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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

  • All businesses in Canada are assigned a VAT 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?

As mentioned, VAT is collected at every phase of the production of goods. As the name suggests, 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.

VAT Number Registration

Businesses are required to register for a VAT 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 VAT is voluntary.

Special rules for VAT 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.

VAT Number In Canada FAQs

What products or services are exempt from VAT?

The following goods and services are exempt from VAT in Canada:
  • Health care 
  • Dental services
  • Banking services
  • Education 
  • Charity events

How does ’zero-rate’ and ‘VAT exempt’ differ in Canada?

Products and services that do not fall under the VAT system are considered VAT-exempt. That means retailers don’t charge VAT on these items or report them on a VAT return. But while you might not pay VAT on zero-rated products and services, they’re still considered taxable. In this case, you need to report them on your VAT return. 

Who is required to pay the VAT in Canada?

VAT is charged to consumers on the sale of most goods and services, but it is businesses that collect the tax. In order to collect the VAT, businesses must have a VAT number in Canada. Foreign businesses that sell products and services in Canada are also required to register for VAT if their taxable supplies are more than $30,000 in one quarter or the full year.
Lisa Rennie avatar on Loans Canada
Lisa Rennie

Lisa has been working as a personal finance writer for more than a decade, creating unique content that helps to educate Canadian consumers in the realms of real estate, mortgages, investing and financial health. For years, she held her real estate license in Toronto, Ontario before giving it up to pursue writing within this realm and related niches. Lisa is very serious about smart money management and helping others do the same.

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