How GST, HST and PST are separated across Canadian provinces
Canadian sales tax cannot be posted to one account at one blended rate, because the rate is set by the place-of-supply rules for each customer and the recoverability of the tax paid differs between the federal and provincial components. This is an illustrative example of how Salt approaches multi-province indirect tax, using a 14-person Canadian professional services firm as the profile.
Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.
The business shape it describes: Canadian professional services firm, 14 staff, clients in 3 provinces.
- Scenario covers
- Chart of accounts rebuild, sales tax restatement and amended filings across three provinces, with ongoing bookkeeping
- Jurisdiction
- Canada
- Sector
- Professional services
- Take a Canadian professional services firm of 14 staff, incorporated in Ontario, that has grown into clients in two further provinces.
- Everything is still charged at the Ontario rate and posted to a single sales tax account. The chart of accounts has not been revisited since incorporation.
- GST, HST and provincial sales taxes posted to one account at one rate, so no filing can be tied back to the transactions behind it.
- The rate charged determined by where the firm is rather than by the place-of-supply rules, which for services generally look to the customer's location.
- Some periods underpaid and others overpaid, which means the net position is far less alarming than the gross error but the exposure is real in both directions.
- Input tax credits claimed at the blended rate rather than by reference to the tax actually paid, which also ignores that GST and HST are generally recoverable through the credit mechanism while separate provincial sales taxes generally are not.
- Rebuild the chart of accounts with separate tax codes per province and per tax type, because a single blended account cannot be unwound line by line after the fact.
- Apply the place-of-supply rules to each revenue stream and determine the correct rate per customer rather than per invoice template.
- Restate the affected periods at the correct jurisdictional rates and recalculate the input tax credit position on the tax actually paid.
- Prepare amendments in both directions, including the periods where the firm underpaid, not only the periods that produce a refund.
- Set the correct tax code at the point of invoicing, so the classification happens once at source rather than as an adjustment at filing.
- A single blended tax account cannot be unwound transaction by transaction, so the chart of accounts has to be rebuilt with separate codes per province and per tax type before any period can be restated.
- The federal and provincial components differ on input tax credit eligibility. Claiming at a blended rate gets that wrong quietly and consistently.
- The firm would be able to file per province against a ledger that reconciles by jurisdiction and by tax type.
- Input tax credits would be claimed on the tax actually paid, with the non-recoverable provincial element treated as a cost rather than a credit.
- Profitability by province would become visible, which a single blended account makes structurally impossible.
What we'd flag
Filing amendments where the firm underpaid is not optional, and clients routinely want to amend only the refund side. Doing both is the only defensible position, and it usually reduces the net benefit of the exercise considerably.
How GST, HST and PST are separated across Canadian provinces
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