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What to Charge Clients: HST, GST, or No Tax?

June 29th, 2010 by

What to Charge Clients: HST, GST, or No Tax?

A very important day is upon us and it will affect many people from many different walks of life. What better way to celebrate Canada Day on July 1st than to introduce another tax? It doesn’t get much more Canadian than that, right?

If you live in the provinces of Ontario or British Columbia, you’ll be “treated” to a new tax effective on Thursday. Dubbed the HST or “Harmonized Sales Tax,” it combines the federal GST with the provincial PST. This may sound like a zero-sum event, but many products and services that were once PST-exempt will be charged the full HST amount. This includes the freelance writing services that I offer.

However, the HST is not going to charged universally among my entire client base. Now, I am not a tax expert and, should you have any questions, you’re probably better off asking a real tax professional or the Canada Revenue Agency directly. That said, based on what I understand, the tax charged to a freelance client is dependent on his or her primary business address. Here are the different possible scenarios.

1. No Tax Charged for Non-Canadians

A good number of my clients happen to be based in the United States. They typically pay me in US funds and that’s why I opened a US bank account; it helps with minimizing the loss through the currency exchange.

These clients, as well as ones from other countries around the world, will not be charged any tax at all from my end. That’s because the service is being “delivered” outside of the country and, thus, is not liable for GST or HST. It is my understanding that it is their responsibility to remit any local taxes, should they be on the hook for any.

2. GST Charged to Out-of-Province Clients

If a client is a fellow Canadian, but does not operate primarily out of British Columbia (or any other HST participating province), then he or she will be charged the regular 5% GST. That portion can be used as part of the Input Tax Credits (ITC), if he or she also has a GST number. This is a part of the write-off process when it comes to filing GST returns and income tax returns each year.

Note that the GST-only billing applies to customers who are not in an HST-participating province. For instance, if I have a client based out of Alberta or Saskatchewan, he or she will be charged GST. If this same client is in a province that does charge HST, then he or she falls into category number three.

3. HST Charged to HST-Participating Provinces

It is in this category that I, as a BC-based freelance writer, will experience the greatest change. All of my clients who are also based in British Columbia will be on the hook for the 12% BC HST as of July 1, 2010. Up until now, I’ve been charging the regular 5% GST for these clients. As you can see, this gives it the automatic appearance of a 7% rate hike.

Yes, these clients can claim some of those funds back in the form of Input Tax Credits, but the up-front cost is higher. For smaller businesses and individuals who do not have a GST/HST number, this reclamation is not possible.

To further complicate matters, I will have to charge a different tax rate to the other HST-participating provinces. This is because the BC HST is 12%, whereas the Ontario HST is 13%. If I have a client in Ontario, as I understand it, I need to charge him or her the Ontario HST rate of 13%. The same can be said about the 13% HST in Nova Scotia, New Brunswick, and Newfoundland and Labrador, though I hear the rates in those provinces may be going up too.

So, What’s Going On with the Anti-HST Petition?

In keeping track of my revenue and expenses, I have a separate column for GST. Soon, I may need to tack on some extra columns for HST and different rates of HST too. The BC provincial government is saying the implementation of HST will simplify the accounting process for most businesses, so I guess I don’t fall into “most businesses.”

Whatever the case, former BC Premier Bill Vander Zalm is championing an anti-HST petition and it’s going to be served up this week. I doubt it will have any effect on the July 1 start of HST in this province, but it may have some impact in the months (and years) ahead. Stay tuned to the news for more on that, I suppose.

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16 Responses to “What to Charge Clients: HST, GST, or No Tax?”

  1. Wow that sounds kinda obnoxious. I would not be able to keep up with all the different taxes. Why don’t they just have a tax specific to each area and you tax people according to where you are located not where they are from. I am being serious, how does that make things easier? Has Canada’s tax system been that complicated all along and how do keep up with it. It shouldn’t matter where you are from, just where the transaction is taking place.

    • Jeff Kee says:

      Simple Answer: Because we have different provinces and territories, and we respect the rights and freedoms of each region. This type of variable taxation is pretty common, and the USA is the same way. Smaller countries, however, don’t have such regional diversity so they don’t bother.

  2. [...] proud to be living in the country that I am, even if it means I have to put up with the headache of yet another tax. C’est la [...]

  3. [...] necessarily required in the first e-mail message, but I do need this information to determine the sales tax [...]

  4. Excellent points you’ve made here with this article. I read it several times just to make certain I’d been reading you appropriately. I love your own stance and I will be guaranteed to come back here.

  5. Paul L. says:

    Thanks for this information, Michael. CRA has been quite confusing in the matter and I didn’t believe that I had to be billing Ontario at 13% because my services were rendered from BC; this confirms they’re correct, so I appreciate it.

    Now the second frustration is muddling through form RC-4058 for Quick Method of accounting. BC/Ontario are ‘participating provinces’ according to the definitions but then on Pg. 10 it brings in other definitions of ‘permanent establishment’ vs. ‘supplies made in’ and a grid of rates. On the pre-July 1, 2010 I would think I’d remit 3.6% using quick method but that’s defining Ontario/BC as non-participating (even though I’ve been only collecting 5% GST in this case – how can I remit more than that?)

    Apologies for rambling + thanks for your help!

  6. Paul L. says:

    My last conversation (with a ’3rd level’ CRA Agent)has me believing that I should be remitting 3.6% from Jan 1-Jun 30, 2010 and 9.0% from July 1-Dec 31, 2010. The agent wasn’t very helpful as I was confused why Ontario/BC were suddenly ‘non-participating provinces’ on the pre July 1 ‘grid’:

    http://www.cra-arc.gc.ca/E/pub/gp/rc4058/rc4058-e.html#P257_23031

    Because I was only billing Ontario 5% GST on my services. His explanation was ‘well if you were only billing 5% then at least you’re remitting at the higher rate of 3.6% vs. the 1.8% so the CRA probably won’t flag that’. He couldn’t give a proper answer on the GST front. Were you billing more than 5% on taxes pre-July 1? I just moved to BC from Ontario a year ago so I may have been doing it wrong.

    July 1/2010 and onward is more straightforward, to an extent. My permanent establishment is in BC, and my supplies are made in a participating province – I remit at 9.0%.

    Let me know if you hear differently. I’ll be calling them again – I have heard two answers though for the HST remittance – both 8.8 and 9.0% (*sigh*). Good luck!

    • Michael Kwan says:

      I was charging no more than 5% pre-July 1, but post-July 1 is a stickier situation. I’m established in BC, but I have clients in Alberta (5%). It wouldn’t make sense for me to remit at 9% if I’m only collecting 5%.

      • Paul L. says:

        I think in this situation you would then remit 2.1% as your establishment is in BC and you’re billing a non-participating province (as both Alberta and BC are non-participating pre-July 1). That’s my impression!

        Just got off the phone with a great CRA agent. Ask for ‘Dave’ if you can – most helpful guy I’ve ever talked to. I was also under the impression I couldn’t claim ANY expenses off my income if I used the quick method; not just claim the HST on my expenses. He corrected that and let me know I can still claim the expenses just not the HST portion.

        I feel like an expert now :P

        Good luck, Michael, and appreciate this site to help matters on my end!

      • Michael Kwan says:

        Either way, this is starting to sound like the “quick method” isn’t all that quick anymore, since we’re stuck separating the different tax rates it seems.

  7. Josh Rimer says:

    I Googled for this because I have an Alberta client, and low & behold – look who has the answer. :-) Thanks Michael!

    • Michael Kwan says:

      Glad I could help Josh. It makes things definitely more complicated and confusing than they need to be. Makes it more challenging when it comes time to report/remit the taxes too.

  8. [...] lay not only in what tax applied to what kind of products and services, but also how to charge out of province customers when it came to the sales [...]

  9. [...] of voting in the next few months. In addition to the federal election next month, there’s the BC HST referendum, as well as a possible election for a new Premier of BC. My vote matters and so does [...]

  10. Darryl says:

    Thanks Michael, very informative post. The CRA Web site, not surprisingly, can be a bit challenging to find such information written in a clear and concise manner.

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