How HST Works for a Canadian Corporation
Back in the days, if you want to buy something in Canada, some products had provincial value-added tax, some had federal value-added tax, and others had both. Nowadays, there is a hybrid system of value-added tax called HST and anyone who buys something -except for bread and essential needsmust pay 13% sales tax.
You should receive a special business number (HST) from the Revenue Agency to be able to receive that 13% tax from people.
Those whose account turnover is over 30 thousand dollars must have HST number even in case of sole businesses.
13% sales tax does not belong to you and you must pay it directly to the government.
Similar to a citizen, every company has certain expenses. An accountant calculates that for example, the “ABC” company has had spent 100 thousand dollars over purchases and paid 13 thousand dollars as value-added tax for these sales. On the other hand, the accountant calculates that the company has had received 200 thousand dollars for sales meaning it has had received 26 thousand dollars value-added tax from people. The company subtracts 13 thousand dollars it paid from 26 thousand dollars and eventually, it pays 13 thousand dollars to the government. The government agrees that you subtract what you paid from the received amount. This system is very interesting as one of the benefits of owning a corporate.
A natural person must pay value-added tax for every purchase, but there is an incentive for legal persons to avoid tax.
Therefore, people pay HST when they buy things, and in fact, the company with a business number receive it and pay it to the government.
Based on such formula, these companies are tax-exempt.