Yes. There is a tax on shipping charges in Canada. While GST/HST may not apply to any shipments going across the border (international shipments), have it in mind that it applies to domestic shipments within Canada. The tax rate used will most often depend on where the freight delivers in Canada.
If the freight moves to Ontario from B.C., an HST rate of 13% would be applied; but, if a shipment from B.C. moves to Newfoundland the HST rate will be 15%. These rates tend to change periodically from province to province so you should contact an experienced general accountant to help direct you properly.
While freight brokers and third-party logistics operating in the US are conversant with not paying sales tax on shipping charges, this is different in Canada as each province reserve the right to create its own specific set of tax rules that will have to be applied to federal tax requirements.
If you’ve been charging a tax-inclusive amount to your Canadian customers (or not charging tax at all), you could be leaving behind a substantial margin or even taking a hidden loss once your accountants clean up the taxes due at the end of each year.
How Taxes Are Applied to Freight Transportation Services in Canada
Just as was noted above, each province in Canada has its own specific set of tax rules to be applied on top of federal tax requirements. Owing to that, below is a breakdown of how taxes are applied to shipping and freight transportation services in Canada.
- British Columbia: 5%
- Alberta: 5%
- Saskatchewan: 5%
- Manitoba: 5%
- Ontario: 13%
- Quebec: 5%
- New Brunswick: 15%
- Newfoundland: 15%
- Nova Scotia: 15%
- NT, NU, YT: 5%
- PEI: 15%
- USA: NIL
Table of Contents
- Types of Duties and Taxes for Items Imported into Canada
- GST/HST Zero-rated Goods and Services
- GST/HST Exempt Goods and Services
Types of Duties and Taxes for Items Imported into Canada
There are 3 kinds of duties and taxes for items being imported into Canada. Goods and Services Tax (GST) is a 5 percent federal tax that applies to items being sold to Canadian customers for domestic consumption. A handful of Canadian provinces have opted to harmonize their provincial sales tax with the general sales tax and the total rate is known as Harmonized Tax (HST).
Provinces that do not participate in the HST collection process impose their own taxes at the local level. The tax rate varies by province and can range from 5 percent to 9.75 percent. Just like it was stated above, freight transportation services that move goods from Canada to another country and vice versa are rated as GST/HST zero-rated services. And if your Canadian business needs to charge GST/HST, it is necessary you understand the difference between GST/HST zero-rated and GST/HST exempt goods and services.
Indeed there is no much difference between GST/HST zero-rated and exempt goods and services from the point of view of the customer; in neither case does he or she get charged GST/HST. Howbeit, from the point of view of the business owner, there is a difference in how the two classes of goods and services are treated when filing a GST/HST return.
GST/HST Zero-rated Goods and Services
Normally, when you fill out your GST/HST return, you can claim Input Tax Credits (ITCs) to get back the GST/HST you paid or owe on your business purchases and/or expenses. But for zero-rated goods and services, you don’t charge or collect GST/HST, but you can still claim ITCs for them on your GST/HST return. Some examples include;
- Medical devices – artificial teeth or limbs, hearing aids, walkers, wheelchairs, canes, guide dogs, eyeglasses or contact lenses, asthmatic devices, modifications to motor vehicles to accommodate disabilities, orthotics, etc. Also included are insulin pumps, syringes, and pens, and urinary catheters.
- Freight transportation services involve the movement of goods from Canada to another country and vice versa.
- Feminine hygiene products such as tampons, sanitary napkins, etc.
- Basic groceries – This category includes meat, fish, poultry, cereals, dairy products, eggs, vegetables (fresh, frozen, canned), coffee, tea, etc. (but does not include items not necessary for dietary needs, such as snack foods, liquor, sodas, candy, etc.)
- Most fishery products if used for human consumption (fish products used for bait are not included).
- Farm livestock sold for human consumption – (GST/HST is collectible on livestock sales that are not used for human consumption, such as horses, dogs, cats, and fur-bearing animals such as mink). Some animals can be either. Rabbits and goats, for example, can either be raised for consumption, in which case they are zero-rated or as pets, in which case they are not.
- Farm equipment such as tractors, seeders, planters, and processing equipment.
- Prescription Drugs and dispensing fees are zero-rated. Most over the counter medications such as aspirin, vitamins and minerals, cold remedies, bandages, etc. are not zero-rated and GST/HST must be charged. (Generally, if the item does not require a prescription and is intended to treat a minor ailment it is not zero-rated.) If the item is an over-the-counter product that does not require a prescription, it is not zero-rated – GST/HST is charged even if a prescription has been issued for the item.
GST/HST Exempt Goods and Services
Meanwhile, for exempt goods and services, you also do not charge or collect GST/HST and you cannot claim Input Tax Credits. Some examples include;
- Educational services that lead to a certificate or diploma or are required to practice (or upgrade the certification for) a trade or vocation. This includes tutoring services for courses that follow a designated school curriculum.
- Most goods and services provided by charities.
- Financial services such as fees for bank accounts, lending, etc.
- Legal aid services.
- Day-care services for children 14 or younger if the service is not provided 24 hours per day.
- Food and beverages sold in an educational institution such as a school or university cafeteria.
- Used residential housing (GST/HST is only charged on new or “substantially renovated” residential housing. Substantial renovations are defined as the removal or replacement of most of the building except for the roof, walls, foundation, and floors – see the CRA’s B-092 Substantial Renovations and the GST/HST New Housing Rebate).
- Residential rental accommodation if equal to or greater than one month duration.
- Music lessons
- Medical and dental services – includes doctors, dentists, dental hygienists, orthodontists, optometrists, chiropractors, physiotherapists, audiologists, psychologists, podiatrists, dieticians, social workers (but not massage therapists). Note that some medical procedures are considered to be non healthcare-related and as such are subject to GST/HST. Examples include preparing medical-legal reports or disability certificates, expert witness fees, cosmetic surgery to enhance an individual’s appearance (unless it is for reconstructive purposes such as from accident or disease), etc.
- Issuing insurance policies (by insurance companies, agents, and brokers).
How to Find Out If You Need To Charge the GST/HST
To understand if you need to charge the GST/HST, here are factors to consider;
The Tax Status of The Services and Expenses
To have a good understanding of the tax status of a service you provide and your related expenses, it is imperative you first consider if it is categorized as taxable supplies (other than zero-rated) in Canada. Putting taxable supplies means that you charge GST/HST on the supplies that are made in Canada.
Have it in mind that you may also qualify to claim ITCs to recover the GST/HST paid or payable on purchases made to provide those supplies. Domestic freight transportation services (services that start and finish in Canada) are subject to the HST for destinations within the participating provinces, and GST for destinations in the rest of Canada.
If The Freight Transportation Service Has an Interlining Agreement
A good number of carriers are known to take part in freight transportation services during the course of a continuous freight movement from a shipper to a consignee, but only one carrier invoices the customer. This process is known as interlining. Have it in mind that only the invoicing carrier who settles the freight bill directly with the customer (either the shipper in the case of a prepaid move or the consignee in the case of a collect haul), is expected to charge any applicable GST/HST.
Businesses that offer shipping and freight transportation services between interlining carriers are zero-rated. Note that this is ideal even if the invoicing carrier is serving as an agent for the other carriers for collecting the GST/HST. When a person whose business includes the supply of freight transportation services is shipping the person’s own goods and transfers possession of those goods to a carrier, that person is considered the shipper of the goods and not a carrier.
In this case, the interlining rules do not apply, the owner-operator can offer freight transportation services for a carrier and the carrier is still tasked with invoicing the customer. At this point, the services provided by the owner-operator are zero-rated especially since the owner-operator is an interlining carrier and not the invoicing carrier.
If Property and Services You Provide Are Incidental To Or Part Of The Freight Transportation Services
Under certain recognized circumstances, a shipping or freight transportation service may also involve other property or services that are incidental to or part of the freight transportation service.
Examples of such property and services include storage and warehousing, loading and unloading, refrigeration, and packing. It is imperative to note that property and services incidental to, or part of, a freight transportation service has the same tax status as the supply of the shipping and freight transportation service.
If Other Shipping and Miscellaneous Charges Apply
These other shipping and miscellaneous charges may include;
- Demurrage payments and penalties: Demurrage payments and penalties are more or less the amounts that a shipper is expected to pay a carrier for the detention of a ship, freight car, or other cargo conveyance during loading or unloading that is far past the scheduled time of departure.
- Insurance charges: Most often, carriers provide their clients with certain levels of protection against losses or damages. They can self-insure their client’s property by including a risk premium in their charge or by charging a separate amount to their client for risk protection.
- Fuel surcharge: If the supply of a shipping or freight transportation service is taxable, note that the whole charge for that service, including the fuel surcharge, is subject to the GST/HST at the same rate. If the supply of a freight transportation service is zero-rated, then the whole charge for that service, including the fuel surcharge, is zero-rated.
- Loss or damage claim settlements: If for any reason freight is lost or damaged in transit, the carrier may be expected under the terms of the agreement to replace the goods or compensate the customer. A damage claim settlement paid by a carrier to a claimant is generally not subject to the GST/HST
- Mileage credits: A rail carrier will have to pay the owners of railway cars a fee when shippers leverage the cars that the rail carrier does not own. This fee is also known as a mileage credit.
- Sufferance warehouse charges: In Canada, sufferance warehouse services (including the handling and storage services a sufferance warehouse operator provides for imported goods) are zero-rated as long as the purpose of the service is to give the opportunity to the examination of the goods before release.
The rate of tax charged for a shipping or freight transportation service provided in Canada will most often depend on the destination of the service. Most domestic freight transportation services are subject to HST for destinations within the participating provinces, and to GST for destinations in the rest of Canada. However, note that rates tend to change periodically from province to province so it is imperative you reach out to an experienced general accountant to help direct you properly.