How does the provincial sales tax (PST) apply to your particular business? For the purposes of illustration, let's assume that you operate a small business in Ontario, selling stained glass ornaments and art objects that you've designed. In Ontario, provincial sales tax is called Retail Sales Tax (RST).
1) Do you have to charge Retail Sales Tax (RST)?
Yes. RST must be charged on the sales of all tangible property, unless exempt. The Government of Ontario defines "tangible property" as "anything that can be seen, weighed, measured, felt, or touched; that is, anything that we can perceive with our senses. It also includes computer programs, natural gas and manufactured gas". So every time you sell one of your stained glass pieces, you'll charge PST as well as GST.
2) How do you do invoice RST?
In Ontario, the Retail Sales Tax owing is calculated based on the selling price of the article before GST has been applied. So let's suppose that the price you're charging for one particular stained glass ornament is $24.95. The GST is 5%, which is $1.25 and the PST is $2.00 (8% in Ontario). You will list these charges separately on your sales invoice, along with the total of $28.20.
3) But what if you ship your products out of the province?
You are responsible for collecting the Retail Sales Tax for sales within Ontario. So if you ship a stained glass ornament to someone in another province (or in the U.S.), you don't charge them the Retail Sales Tax. (Be sure, though, that you keep all your bills of lading and other shipping documents to prove that this was an out-of-province sale.)
4) What do you do with the Retail Sales Tax you've collected?
Basically you remit it to the province. The first step is to register as a vendor. In Ontario, this means that you fill out an RST Vendor Permit. You can do this in person at an Ontario Ministry of Finance office, by phone, by mail, or through an ServiceOntario Gateway for Business website. Registration as a vendor is free.
Then, just as you do with the GST, it's a matter of keeping track of the Retail Sales Tax you collect and filling out and filing an RST return form. The form comes with line-by-line instructions. In Ontario, how often you have to file your RST returns (and pay what you owe) is determined by the amount of RST you charge your customers each month; the government will tell you how often you have to file when you register.
Note that unlike the GST, there is no 'small supplier' classification for the Retail Sales Tax. In other words, even if your sales are small, if you're selling taxable goods and/or services, you must obtain a Vendor's Permit and report your Retail Sales taxes.
5) What about the Retail Sales Tax you've paid for business supplies?
In Ontario, you have to pay RST on any equipment or supplies that you purchase for use in your business. In fact, if you buy equipment or supplies from a supplier outside of Ontario, you have to self-assess RST when you bring the goods into Ontario.
However, you can claim an exemption from RST for any taxable goods or taxable services that you purchase and intend to resell, such as your inventory. To do this, you give your supplier a Purchase Exemption Certificate (PEC) at the time of sale. Read details on using Purchase Exemption Certificates (from the Government of Ontario).
The same process of charging, collecting, and remitting provincial sales tax that I've outlined in the example above applies to businesses in BC, Saskatchewan and Manitoba (although the PST rates vary from province to province). For more information about applying PST (or RST), visit my Provincial Sales Tax Library. You may also want to visit my GST/HST Library to learn how the GST apples to your business.
