Tax is often considered a necessary evil. It is also a source of revenue for the federal government of Canada. GST is a form of value-added tax that is imposed when something changes hands in Canada. GST is a simplified form of taxation that takes the place of enforcing multiple types of tax in Canada. The amount of GST can be calculated out of a sale total using a simple formula.
What Is GST?
GST stands for "goods and services tax." The GST is a tax that is imposed by the government on the sale of goods and services in Canada. GST is part of a harmonized sales tax (HST) that may include provincial sales tax (PST).
GST is charged on a wide range of goods and services but is not applied to basic grocery food items. Exempted items are known as zero-rated because their tax rate is zero.
The GST percentage is charged on the sale of goods and services that are made or sold in Canada. This includes goods and services that are imported as well as goods and services that are exported.
When Is GST Included?
The GST is calculated on an item’s sale price and is then applied to that price. The GST is then removed from the price of the item, and the total price is given to the customer. Canadians pay the GST when purchasing a good or service.
When a Canadian travels to another country, the GST is usually not charged on the purchase of the good or service, and visitors to Canada are expected to pay the GST when applied to purchases. Rebates are available for both residents (including first nations residents) and nonresidents who have inappropriately been charged the GST.
Lower-income Canadian residents may also be eligible to receive a GST/HST credit on a quarterly basis to help offset the expense of taxed goods and services.
How to Calculate the GST Percentage
Merchants in Canada are expected to charge GST. The amount of GST will depend on the province. The Government of Canada states that current GST percentage rates are 5 percent in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan and Yukon. Other provinces charge HST, which is treated similarly to GST.
To calculate the GST included in the price to be charged, find the GST rate for the province, calculate the GST that you will be charged and take the total price of the item and subtract the GST from it.
Do you need to know how to find the GST amount from the total amount? First, take the total cost and divide it by the number of units for sale. Then, subtract the GST from the result. It is important to consider that GST may not be the only tax assessed on a sale.
For example, if a merchant in British Columbia is selling a product at a pretax rate of $100, the GST would be $5 in addition to $7 PST for a total of $112. If the merchant is selling 10 of the same product, the GST would be $50 plus $70 PST for a total of $1,120.
Alberta is the only province that does not have PST. In Alberta, a $100 product would be assessed at $5 GST, and 10 units would have a GST of $50. It is important to know the tax rates associated with a province before calculating the tax out of an amount.
The government of Canada provides a useful GST/HST calculator tool for calculating GST, HST and PST. This tool is a quick and convenient method for calculating a GST percentage from an amount.
Hashaw Elkins is a financial services and tax professional, as well as a project management consultant. She has led projects across multiple industries and sectors, ranging from the Fortune Global 500 to international nongovernmental organizations. Hashaw holds an MBA in Real Estate and an MSci in Project Management. She is further certified in organizational change management, diversity management, and cross-cultural mediation.