Tax Question:
How does PST work and how is it different from GST?
Facts:
PST (Provincial Sales Tax) is a provincially levied retail sales tax that is generally applied to goods or services acquired for personal use in British Columbia unless there is a specific exemption. GST (Goods and Services Tax) is a federally levied value-added consumption tax that is applied to the supply of most of the goods and services purchased in Canada.
PST
PST is only charged to the end-user, the final person in the supply chain that purchases the product or service, irrespective of whether they are a corporation or an individual consumer. A purchaser who is not the end-user can apply to the provincial government for a certificate that can be presented to the supplier as proof that they do not have to pay the tax as they are reselling the good or service. Therefore, unlike GST, the tax is only charged once, rather than at every step of the supply chain. The rate of tax in BC is 7% for most items. There are various items exempt from the tax, while other items such as alcohol, accommodation, passenger vehicles and private sales of certain items are taxed at higher or varying rates.
GST
GST is applied to the total value of the product or service at each stage of the supply chain. Registered corporations and individuals can claim input tax credits on their purchases to deduct against the GST collected on sales so they are only paying tax on the difference or value-added amount. This prevents cascading or double charging of the tax at each step of the supply chain. In the end, the tax is borne by the consumer, this gives rise to a significant difference between the two tax systems. Generally, the GST rate is 5% except for certain items that are either zero-rated or exempt.
HST
HST (Harmonized Sales tax) is a blend of the two types of tax. It works mostly like the GST in that it is charged at each step of the economic process. However, it also has characteristics of PST in that there are exemptions or rate adjustments based upon user groups or product type. User groups like children are an example. Products types like medicine and food are other examples.
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Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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