How to Charge GST/HST on Out-of-Province Sales in Ontario (and Claim ITCs Correctly)

As an Ontario-based business, charging and remitting the right sales tax is crucial. This applies not only to local sales but also to transactions involving customers or suppliers outside Ontario. Understanding the “place of supply” concept and how input tax credits (ITCs) work when you pay GST/HST on business expenses is essential.

This post provides a clear overview of:

• How to determine which tax to charge on out-of-province sales

• How this affects your Ontario HST return

• When you can claim ITCs on out-of-province expenses

  
  

Picture of a tax return

Why “Place of Supply” Matters

For GST/HST purposes, the tax rate you charge depends on where the sale is deemed to occur, not where your business is located. This is known as the place of supply. In simple terms:

• If a sale is made in a province that uses HST, you generally charge the applicable HST rate for that province.

• If a sale is made in a province that only has GST, you charge 5% GST.

• If a sale is to a customer outside Canada, it is often zero-rated (0%).

  
  

The CRA’s official guidance on place-of-supply rules explains how to determine the province in which a supply is made for tax purposes.

How to Charge Tax on Out-of-Province Sales

Here’s how it works in practice:

Sales Within Canada

Ontario to another province with HST: If your Ontario business sells to a customer in a province that charges HST (e.g., Nova Scotia), you must charge the HST rate of that province (e.g., 15%). Even though you are remitting HST returns in Ontario, you still collect and remit the tax for the correct jurisdiction through your CRA return.

Ontario to a province with only GST: If you sell to customers in provinces like Alberta, British Columbia, or Saskatchewan, you charge 5% GST only.

Sales Outside Canada

Generally, sales of goods or services to customers outside Canada are zero-rated (0% GST/HST). This means you don’t charge tax, but you may still be eligible to claim ITCs on related expenses.

How This Shows Up on Your Ontario HST Return

When you file your GST/HST return with CRA:

• You report all taxable sales (no matter where the customer is).

• You report all GST/HST collected.

• CRA applies the correct tax to the province based on place-of-supply rules.

• CRA distributes provincial portions internally.

  
  

You don’t file separate provincial tax returns just because you charged a different HST rate; everything is reported on your one GST/HST return.

Input Tax Credits (ITCs) on Out-of-Province Expenses

ITCs allow GST/HST registrants to recover the GST/HST paid on eligible business expenses, regardless of where those expenses were incurred in Canada.

Here’s what you should know:

✔ If you paid GST or HST on a business expense, you can normally claim an ITC on your return.

✔ You can claim ITCs for GST/HST paid in any province (not just Ontario).

✔ You cannot claim ITCs on taxes that are not GST/HST (for example, provincial sales taxes (PST) that aren’t part of HST).

This means:

• If an Ontario company buys office supplies in Quebec and pays GST/HST, you can claim the full GST/HST portion as an ITC.

• If you pay non-recoverable provincial tax (like standalone provincial tax), it is not claimable.

  
  

Practical Tips for Ontario Businesses

Here are a few best practices to help you manage your sales tax obligations effectively:

Track Your Customers’ Locations

Keep accurate records of where goods and services are delivered. This information determines the correct tax rate.

Set Clear Tax Codes in Your Accounting Software

Ensure your system applies the right tax (e.g., GST vs. HST at provincial rates). This will help prevent errors in tax collection.

Keep Good Documentation for ITCs

Make sure your receipts clearly show the GST/HST paid. This will help you claim ITCs confidently.

Understand Zero-Rated Sales

Sales to customers outside Canada are usually zero-rated. This means no GST/HST to collect, but you can still claim ITCs.

Final Thoughts

Getting out-of-province GST/HST right is key to staying compliant and optimizing your cash flow. It’s not about where your business is based; it’s about where your customer receives the goods or services. Once you apply the place-of-supply rules correctly and understand your eligibility for ITCs on expenses, you’ll have cleaner books and smoother GST/HST filings.

If you ever feel unsure, it’s worth reviewing your setup with an accountant or tax professional familiar with Canadian GST/HST rules. This could save you time and money at filing time.

Helpful CRA Links

• CRA – Charge and collect the tax – Which rate to charge: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-which-rate.html

• CRA – GST/HST rates and place-of-supply rules: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/charge-collect-place-supply.html

• CRA – Input tax credits (ITCs): https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/calculate-prepare-report/input-tax-credit.html