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Canadian FAQ #202 – Difference Between PST & GST



Grant Gilmour

Tax Question:

How does PST work and how is it different from GST?

Facts:

PST (Provincial Sales Tax) is a provincially-levied retail sales tax that is generally applied to goods or services acquired for personal use in British Columbia, unless there is a specific exemption.

GST (Goods and Services Tax) is a federally-levied value added consumption tax that is applied to the supply of most of the goods and services purchased in Canada.

Discussion:

PST is only charged to the end user, the final person in the supply chain that purchases the product or service, irrespective of whether they are a corporation or an individual consumer. A purchaser who is not the end user can apply to the provincial government for a certificate that can be presented to the supplier as proof that they do not have to pay the tax as they are reselling the good or service. Therefore, unlike GST, the tax is only charged once, rather than at every step of the supply chain. The rate of tax in BC is 7% for most items. There are various items exempt from the tax, while other items such as alcohol, accommodation, passenger vehicles and private sales of certain items are taxed at higher or varying rates.

GST is applied on the total value of the product or service at each stage of the supply chain. Registered corporations and individuals can claim input tax credits on their purchases to deduct against the GST collected on sales so they are only paying tax on the difference or value added amount. This prevents cascading or double charging of the tax at each step of the supply chain. In the end the tax is borne by the consumer, this gives rise to a significant difference between the two tax systems. Generally the GST rate is 5% except for certain items that are either zero rated or exempt.

HST (Harmonized Sales tax) is a blend of the two types of tax. It works most like the GST in that it is charged at each step of the economic process. However, it also has characteristics of PST in that there are exemptions or rate adjustments based upon user groups or product type. User groups like children are an example. Products types like medicine and food are other examples.

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Grant has been in the CA business since 1988, starting his own practice in 1994. His tax expertise encompasses tax planning, international tax issues, and Scientific Research and Development tax credits. He is a graduate of the CICA In-Depth Tax Course and in 2012, Grant received the CA Community Service Award and the Scout Leader Medal.

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