Doing Business in Canada: Taxes & Duties


GOODS AND SERVICES TAX - Canada has a 5% value-added tax imposed on goods and services called the Goods and Services Tax (GST). The GST is applied to each transaction in the production and distribution chain, including most services and including the importation of most goods and services into Canada. It is charged on the “value of the consideration,” meaning, in general terms, the purchase price, except that in the case of imported goods, GST is based on the duty paid value (which includes customs duty). Goods exported from Canada are not subject to GST. There are limited exemptions from GST such as most financial services (including, for this purpose, insurance premiums, loan interest and share purchase transactions), specified goods (including most grocery items) and others.

All persons, including corporations, partnerships and sole proprietorships who are engaged in a commercial activity in Canada having worldwide sales of goods and services subject to GST greater than CND30,000 per year, must register to collect GST. The concept of “commercial activity” is quite broad and includes not only carrying on a business in Canada but also single ventures and the sale of real estate. Businesses which register for GST are entitled to input tax credits equal to the full amount of the GST paid by them on all business purchases. The input tax credit system effectively reduces the tax (on a net basis) on each business entity to the value added by such entity. Unregistered persons are not required to collect GST on their sales but are also not entitled to recover GST paid on their purchases as input tax credits...

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