What is Harmonized Sales Tax (HST) for SaaS?

Harmonized Sales Tax (HST) is a single sales tax rate used in certain Canadian provinces that combines the federal Goods and Services Tax (GST) and a provincial sales tax into a single rate. For SaaS vendors, it is crucial that the tax rate a customer in an HST province must be charged, eliminating the need to remit two separate taxes.

Goods and Services Tax is a federal sales tax levied uniformly throughout Canada, whereas PST is a tax levied separately by some provinces and managed by them alone. HST combines these two into one rate. This means that instead of two taxes, you will pay and submit one at the register. In a GST and PST application, each seller calculates and declares these taxes, involving rules and registration systems. In HST provinces, the federal and provincial components are unified, which influences the billing and remitting procedures for businesses, including SaaS sellers, making them less distinct.

Only five provinces use HST; the rest use GST alone or GST combined with a separate PST or Quebec Sales Tax (QST).

HST rates differ in the five provinces

• Ontario sets a 13% rate, 
• Nova Scotia at14%, 
• and New Brunswick, Newfoundland and Labrador, and Prince Edward Island at 15%. 

Single rates have both federal and provincial components, indicating no additional provincial tax is levied.

Suppliers ( non-residents of Canada) can choose to utilize the simplified cross-border system. The provision usually applies to any GST or HST levied on the digital supply of goods/services taxable supplied in Canada to certain persons. The specific tax rate can be determined by Canada’s rules for recognizing the supply and the customer’s habitual place of residence, rather than the seller’s home or single billing address.
These are several aspects SaaS businesses should think about:
• Tax is calculated under the proper place-of-supply rules and uses location clues.
• An Invoice must indicate the HST rate and charge to be understood and be open to audit.

A SaaS business should be able to verify the GST/HST registration system it falls under before applying HST. The simplified cross-border rules for foreign sellers usually apply if the non-resident seller qualifies and needs to register when taxable income from digital products or services offered to specified Canadian purchasers exceeds CAD $30,000 after 12 months. The threshold also depends on the sales status of the customers and whether the sales are facilitated by a distribution platform. Businesses may review their billing platform or payment provider, as manual tax tracking for provinces with both HST and GST structures can increase errors.