The Goods and Services Tax (GST) is a value-added tax levied on most goods and services sold in Canada, currently set at 5%. However, starting January 1, 2024, it will increase to 9% as part of a two-stage hike outlined in the 2022 federal budget. This change will profoundly impact Canadian businesses, consumers, and government finances.
The GST, introduced in Canada in 1991, replaced the manufacturers’ sales tax (MST). Administered by the Canada Revenue Agency (CRA), it applies to most goods and services, with exemptions and zero-rated categories. Exempt items, like groceries and medical services, aren’t subject to GST, while zero-rated items, such as basic groceries and prescription drugs, incur a 0% GST rate. Businesses with over $30,000 in annual turnover must register for GST, remitting tax on taxable supplies and claiming input tax credits (ITCs) on their purchases to avoid tax cascading.
Some provinces harmonize their provincial sales tax (PST) with the GST to create a harmonized sales tax (HST), administered by the CRA in participating provinces. Quebec administers the GST and Quebec sales tax (QST) together. Alberta and territories have only the GST, lacking provincial or territorial sales taxes.
The GST rate increase aims to bolster government revenue for healthcare, seniors, and climate change initiatives. It’s part of a progressive approach, with higher-income households affected more, countered by enhanced benefits and rebates for lower-income households. The $9.6 billion Assurance Package will offer cash transfers and tax credits to mitigate the tax’s impact on low- and middle-income families, seniors, and persons with disabilities. Notably, the government will cover the GST for publicly subsidized education and healthcare.
Implemented in two stages, the GST rate rose from 7% to 8% on January 1, 2023, with the upcoming increase to 9% on January 1, 2024. The government commits not to exceed this rate. This measure underscores the government’s fiscal strategy to balance revenue generation with social equity, ensuring the tax burden aligns with income levels and fostering economic stability for all Canadians.
