This chapter contains these topics:
Canada has two primary types of taxes:
Value added tax (VAT), called a goods and services tax (GST). This is assessed by the federal government.
Provincial sales tax (PST). This is assessed by provincial governments. Provincial sales tax rates can vary from province to province and can be based either on the value of goods and services prior to the federal tax assessment or based on the value including the federal tax assessment.
Generally, the seller of the goods and services remits both the federal and province taxes to the tax authorities. However, it is also acceptable for the seller to remit only the federal tax and for the purchaser to remit the provincial tax (called a self-assessment tax). The JD Edwards World software accurately handles Canadian tax types and remitters.
The primary taxes for Canada are as follows:
As of January 1, 1991, Canada changed from a federal sales tax to a federal value added tax, which is the Goods and Services Tax (GST). Provincial taxes are still computed as a sales tax.
The Canadian GST is modeled after European value added taxes (VAT). For more information about VAT, see the chapter Chapter 1, "Value Added Taxes (VAT).". What differentiates GST from most other countries using VAT is the inclusion of Provincial Sales Tax (PST) in the total calculation.
Each province can calculate PST in one of two ways. Although the PST is always calculated after the GST is calculated, in some cases it is based on the pre-GST value and in other cases it is based on the value after GST has been added (in effect, a tax on a tax). In addition, each province may have different PST rates.
Examples of the two PST calculations are shown as follows. In both examples, GST is 7% and PST is 5%. The value of the product is 1000 and, the value added is 1000.
Example 1 - PST is calculated on the pre-GST value
| Tax Type | Calculations |
|---|---|
| GST | = Value of the product x GST tax rate
= 1000 x .07 = 70 |
| PST | = Value of the product x PST tax rate
= 1000 x .05 = 50 |
| Total tax due | = GST + PST
= 70 + 50 = 120 |
Example 2 - PST is calculated after GST is added (tax on tax)
| Tax Type | Calculations |
|---|---|
| GST | = Value of the product x GST tax rate
= 1000 x .07 = 70 |
| PST | = (Value of the product + GST) x PST tax rate
= (1000 + 70) x .05 = 53.50 |
| Total tax due | = GST+ PST
= 70 + 53.50 = 123.50 |
PST can be remitted to the tax authorities by either the seller or the buyer.
In most cases, the seller of the goods and services calculates and remits both the GST and PST to the tax authorities. In a few cases, the seller calculates and remits only the GST. The purchaser of the goods and services must remit the PST. This last case is called a self-assessed tax in Canada (and called a use tax in the United States).
The self-assessed tax can apply to both PST calculations. It can apply when PST is based on the pre-GST value and when PST is based on the value after GST has been added (tax on a tax).
In Canada, most PST is not self-assessed. The seller of the goods and services calculates and remits both the GST and PST to the tax authorities. Seller-assessed PST can apply to both PST calculations. The calculations apply when PST is based on the pre-GST value and when PST is based on the value after GST has been added (tax on a tax).