Goods and Services Tax (GST)

Definition

The Goods and Services Tax (GST) is a federal tax charged on most goods and services sold for domestic use. 

What is Goods and Services Tax?

The GST is a value-added tax, meaning it is applied at each stage of the production and distribution process, ultimately paid by the end consumer.

Businesses with annual taxable supplies exceeding a certain threshold must register for GST purposes with the Canada Revenue Agency (CRA). The GST applies to most goods and services sold or provided in Canada, including sales of real property, leases, and rentals, as well as imported goods and certain supplies of intangible property and services. However, some goods and services are exempt from GST, such as basic groceries, prescription drugs, and some medical and dental services.

Businesses registered for GST can claim input tax credits to recover the GST paid on business purchases and expenses. This helps ensure that the tax is applied only to the value added at each stage of production and distribution.

GST returns must be filed periodically (monthly, quarterly, or annually). Failure to file returns or remit tax owing on time may result in penalties and interest charges.

The GST is a significant source of revenue for the federal government. It funds various government programs and services, including healthcare, education, infrastructure, and social assistance.

Example of Goods and Services Tax

Imagine Sarah purchases a new laptop for $1,000 from an electronics store in Toronto. The federal GST rate in Canada is 5%.

The breakdown of the purchase would be as follows:

• Laptop price: $1,000
• GST (5%): $50

Total amount paid by Sarah: $1,050

The store collects $50 as GST from Sarah and remits it to the government. This GST contributes to government revenue and helps fund various public services and programs.