How hst works
Instead of charging federal GST and a separate provincial sales tax, a business in an HST province charges one combined rate on taxable sales and remits it to the Canada Revenue Agency, which then shares the provincial portion with that province behind the scenes without extra work for the business. This simplifies invoicing and filing considerably compared with tracking two separate taxes on every single sale made.
A business registered for GST/HST claims input tax credits on the HST it pays on its own purchases, the same way it would for GST elsewhere in Canada, recovering the tax cost on legitimate business expenses incurred. Moving goods or providing services between an HST province and a GST-only province requires care over which rate actually applies to a given sale, since the rules depend on where the customer is located.
Example
A software company based in Ontario, an HST province at 13 per cent, invoices a local client $5,000 plus $650 HST, for a total of $5,650. It also paid $260 HST on office expenses that period, claimed as an input tax credit, so it remits $390 net HST to the Canada Revenue Agency, all reported on one combined return rather than two separate federal and provincial filings as required elsewhere.
HST in QuickBooks Online vs Xero
QuickBooks Online applies the correct HST rate automatically once a business's home province is set to an HST province, coding sales and purchases without any manual lookup required. Xero does the same, defaulting sales tax codes to HST at the applicable provincial rate and reporting it on a single GST/HST return line each period.
Common mistakes
- A business operating across an HST province and a GST-only province applies the wrong combined rate, undercharging or overcharging customers on specific sales.
- Input tax credits on HST paid for business expenses are missed because the purchase was coded as a GST-only transaction instead of the full HST rate.
- A new business in an HST province assumes GST and provincial tax are still filed separately, duplicating work the harmonised system was designed to remove.
Why it matters
HST combines federal and provincial tax into one rate and one filing, which simplifies compliance but only if transactions are coded correctly from the start. Getting the rate or the province wrong misstates what is owed to the Canada Revenue Agency and understates input tax credits the business is entitled to recover. For business owners in HST provinces, accurate coding keeps the single combined return simple and keeps cash flow predictable.
Related terms
How LedgerBPO handles hst
We code sales and purchases to the correct HST rate for your province, reconcile the HST control account each period and prepare return figures ready for your or a registered filer's review before submission to the CRA on schedule.