Finance Canada
Harmonized Sales Tax - Technical Paper: 2

2. Overview of the System

Basic approach

The HST will operate as a single value-added tax based on the operating rules of the GST. The rules governing the HST will be found in the Excise Tax Act. Tax will be levied at the current GST rate of 7 per cent for supplies outside of the participating provinces and at the HST rate of 15 per cent for supplies in participating provinces. Initially, Revenue Canada will administer the HST.


The registration and collection requirements contained in the Excise Tax Act will be retained. There will be no requirement for GST registrants to obtain new registration numbers. Depending on where the supply is made, registrants will collect the tax at either the 7-per-cent GST rate or the HST rate.

Tax base

The tax will be levied on those goods and services that are currently subject to GST.

Liability for tax

The tax will be levied on the same basis as under GST. A recipient of a taxable supply made in Canada will be required to pay tax equal to the applicable rate times the amount paid for the supply.

New rules will be added to determine when a supply made in Canada is considered to be made in a participating province. These rules are discussed in detail in Chapter 4. Generally, they will provide that a supply will be considered to be made in a participating province where:

In the vast majority of cases, general rules will provide a simple method for determining the place of supply. Special rules will deal with exceptional cases, prevent double taxation, and limit the potential for tax avoidance. Specific rules will be provided to determine the place of supply of certain "specified" services and intangible personal property, motor vehicles, passenger and freight transportation services, postage, telecommunication services and tour packages.

Self-assessment rules will ensure that the proper amount of HST is paid on property and services transferred from a non-participating province to a participating province. These rules will generally apply to persons engaged in non-commercial activities, unregistered small suppliers and consumers.

Registrants who do not make supplies in the participating provinces will continue to collect and remit tax at the current 7-per-cent GST rate.

Recovery of tax

The current input tax credit rules will apply under the harmonized tax system. All registrants will be entitled to claim input tax credits for tax payable at either the 7-per-cent GST rate or at the HST rate of 15 per cent on property or services that they acquire or import. The input tax credit will be based upon the extent to which the property or services are for consumption, use or supply in the course of the registrant's commercial activities.

The change-in-use rules for capital property and real property will be maintained subject to certain modifications to recognize that the tax may have been paid at either the harmonized or non-harmonized rate.

Rebates will be introduced for persons who are not entitled to full input tax credits and who pay tax at the 15-per-cent harmonized rate. A rebate in respect of the provincial component of the HST will be available where goods are removed from a participating province within 30 days of delivery, and the person provides proof that any applicable provincial retail sales tax has been paid in the province of destination.

A second rebate will allow recovery of tax on services or intangible personal property acquired for use primarily in non-participating provinces. This rebate will relate to the provincial component of the HST and will be based on the extent to which the property or service is consumed or used outside of the participating provinces.

A rebate of the provincial component of the HST on books will be available in participating provinces. This rebate will be provided at the point of sale.

The above rules relating to recovery of tax are discussed in detail in Chapter 6.

Rebates for charities and
non-profit organizations

The participating provinces will provide rebates to charities and qualifying non-profit organizations (other than public institutions) resident in the participating provinces for the provincial component of the HST rate. As under the GST, the rebate rates will be 50 per cent of non-recoverable tax payable.

Rebates for provincial public sector bodies

Under the GST, provincial government emanations receive partial rebates in respect of tax payable that is not otherwise recoverable. The partial rebate factors for municipalities, hospital authorities, school authorities, public colleges and universities are 57.14 per cent, 83 per cent, 68 per cent, 67 per cent and 67 per cent respectively. The purpose of these rebates is to offset the adverse budgetary impact that would otherwise have resulted from moving from the manufacturer's sales tax to the GST and to prevent a fiscal transfer from the province to the federal government.

The impact of the HST on the budgets of these bodies will vary depending on the amount of provincial retail sales tax currently paid by each of these bodies, which is affected by factors such as their current tax status, provincial retail sales tax rates and exemptions.

In Newfoundland and Labrador, no rebate of the provincial component of the HST will be offered to these provincial government emanations as they will either pay less tax than they do currently and/or they are directly funded by the provincial government.

In New Brunswick, municipalities will be offered a rebate of 57.14 per cent of the non-recoverable tax payable in respect of the provincial component of the HST.

In Nova Scotia, municipalities, hospital authorities, school authorities, public colleges and universities will be eligible for rebates according to the rebate factors noted above that currently apply for GST purposes.

Housing rebate

A housing rebate will be available to buyers of new homes constructed in Nova Scotia who use their homes as their primary place of residence. Purchasers of single homes, semi-detached homes, condominium units and co-operative housing units will be eligible for the rebate. The rebate will apply to newly constructed homes. Chapter 9 contains further details about the housing rebate.

Reporting requirements

The current reporting requirements contained in the Excise Tax Act will apply under the HST. These will include the rules for remittance of tax, returns, fiscal periods and reporting periods. As is currently the case, registrants who file quarterly will have the option of filing monthly returns. Similarly, annual filers will be able to elect to file sales tax returns on a quarterly or monthly basis.

For each reporting period, a registrant will file one tax return and make a single determination of its net tax. The net tax will include all tax collectible and all input tax credits claimed. A registrant will not be required to separately account for the federal and provincial components of the tax.

As is currently the case, the reporting periods will be as follows:

Input tax credit documentation requirements

The current rules prescribing the information required to be included on invoices and receipts for input tax credit purposes (i.e. the information requirements set out in the Input Tax Credit Information (GST) Regulations) will be modified to accommodate tax-inclusive pricing.


Transitional rules have been designed to ensure that the current provincial retail sales tax systems do not overlap with the HST. Accordingly, where a transaction is not subject to HST by virtue of the transitional rules, the existing GST will apply along with any applicable provincial retail sales tax.

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