Lesson 23 — Activity 2: What is GST, PST, and HST?


Warm Up


In the last activity, you learned about income taxes and hidden taxes. In this activity, you will learn about value-added sales taxes, including GST, PST, and HST.




    
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A value-added tax is one that is added onto the price of goods or services and paid for directly by consumers when the purchase is made or the service accessed. In Canada, there are three such taxes — GST, PST, and HST.

  • GST — Goods and Services Tax (federal)
  • PST — Provincial Sales Tax (provincial)
  • HST — Harmonized Sales Tax (shared between federal and provincial)

Let's take a look at each of these three types of taxes.


You are probably most familiar with GST. GST came into effect on January 1, 1991, under a Progressive Conservative government led by Prime Minister Brain Mulroney. Up until then, all manufactured goods in Canada faced a 13.5% manufacturer's tax, which made Canadian goods less competitive to sell on the international market. In order to eliminate this tax and help Canadian companies be more competitive, the government needed a new source of revenue to maintain the services it needed to provide to Canadians.


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Exempt from GST

At first, GST was 7%, but it has since been reduced to 5%. Some things such as groceries, rent, and medical and financial services are exempt from GST, which means you don't have to pay this tax. However, you pay GST on most other goods and services that you buy, such as new clothing or a new car.

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Not exempt from GST


Have you ever noticed a spot for PST on order forms for goods you have purchased over the Internet? In addition to GST, most Canadians also pay PST (Provincial Sales Tax) on goods and services that are bought in their provinces. These separate provincial sales taxes are collected in the provinces of British Columbia, Saskatchewan, Manitoba, and Quebec. Alberta and Canada's three territorial governments do not pay this additional sales tax. The remaining provinces pay a Harmonized Sales Tax (HST), which you will learn more about below.

PST was in effect long before the introduction of GST. The result for consumers was that a purchase of $100 could end up costing as much as $120. The extra $20 came from GST (5% = $5) and PST (up to 15% = $15). In Alberta, that same $100 purchase ended up costing only $105, as it only included GST (5% = $5). As you can see, living in Alberta can be good for your pocketbook, as you don't have to pay as much money on sales taxes as some other Canadian provinces.


It became apparent that something needed to be done to reduce the amount of the sales tax that most Canadians were paying. This led to the introduction of HST, which is a harmonized sales tax that the federal government has set at a maximum of 15%. Under this system, the federal government collects the HST and then reimburses the provinces for their share of the tax. The provinces that have an HST tax include: New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island.