Canada sales taxes: What foreign companies owe before they open a Canadian office 

Who this is for: CFOs, controllers, and operations leads at companies outside Canada selling goods, services, or digital products to Canadian customers, and any company evaluating a physical Canadian presence. If you are already selling into Canada without having assessed your sales tax position, this article is urgent reading. 

The compliance gap that is already open: Most foreign companies think Canadian sales tax obligations begin when they open a Canadian office or hire a Canadian employee. They do not, and in Quebec, they never did. Quebec required non-resident suppliers to register for QST as early as January 1, 2019. Federally, since July 1, 2021, the obligation extends to any foreign company introducing a new product line into the Canadian market, expanding an existing service offering to Canadian clients, or acquiring a Canadian business,with no physical presence in Canada required. 

The deeper problem is this: sales tax is the most underestimated compliance risk in Canadian tax. It moves quietly, no annual return flags it, no auditor raises it at the board level, until the CRA or Revenu Québec does. By then, the exposure includes years of unremitted tax, compounding interest, and penalties that dwarf the original obligation. The penalty for non-compliance is not hypothetical. The CRA has enforcement tools against non-resident suppliers, and the reputational and financial cost of a retroactive registration and remittance, with interest, is substantially higher than proactive compliance from the start. 

In this article:

Canada’s sales tax system: four parallel regimes, one country

Canada does not have a single national sales tax. It has four overlapping systems that apply simultaneously depending on where your customer is located, what you are selling, and how you are selling it. Foreign companies that treat Canadian sales tax as a single calculation routinely get it wrong.  

a. GST — the federal baseline (5%, applies everywhere)  

The Goods and Services Tax is a 5% federal value-added tax on the supply of most goods and services in Canada, imposed under the Excise Tax Act. It applies in every province and territory. A registered supplier charges GST, collects it from customers, and remits it to the CRA. The supplier can then claim input tax credits (ITCs) for GST paid on goods and services acquired in the course of its commercial activities — meaning GST is ultimately borne by the end consumer, not by businesses in the supply chain. For foreign companies with Canadian commercial activities, the ITC mechanism is a cash recovery opportunity that is frequently missed.  

b. HST — harmonized provinces (13–15%, replaces GST)  

Five provinces: Ontario, New Brunswick, Nova Scotia, Newfoundland and Labrador, and Prince Edward Island, have harmonized their provincial sales tax with the federal GST into a single Harmonized Sales Tax.  

The combined rate is:  

• Ontario: 13% (5% federal + 8% provincial);  
• New Brunswick, Newfoundland and Labrador: 15% (5% federal + 10% provincial);  
• Nova Scotia: 15% (5% federal + 10% provincial);  
• Prince Edward Island: 15% (5% federal + 10% provincial).  

HST is administered by the CRA under the same rules as GST, using the same registration number. ITCs are available in the same way. The practical consequence: a foreign company selling into Ontario owes 13% on every taxable supply, not 5%. Getting this wrong in pricing, invoicing, or remittance creates both a customer relationship problem and a CRA problem simultaneously.  

c. QST — Quebec’s parallel system (9.975%, stacked on GST)  

Quebec did not join the HST framework. Instead it harmonized its own Quebec Sales Tax with the GST in structure, but administers it separately through Revenu Québec, not the CRA. The QST rate is 9.975%, applied in addition to the 5% federal GST, for a combined effective rate of 14.975% on taxable supplies in Quebec.  

For businesses whose principal place of business is in Quebec, Revenu Québec administers both GST and QST on behalf of the CRA, a single point of contact for both taxes. For all other businesses, including most foreign companies entering Canada, the CRA administers GST directly while Revenu Québec administers QST separately. Either way, if your Canadian operations include Quebec or if you are selling goods or services to Quebec consumers, you have both a GST registration obligation and a QST registration obligation. These are separate registrations, separate returns, and separate remittances, even where Revenu Québec is the common administrator. Companies that register only for GST and assume Quebec is covered are non-compliant from day one of their Quebec sales. 

d. PST — retail sales tax in BC, Manitoba, and Saskatchewan  

British Columbia, Manitoba, and Saskatchewan impose their own provincial retail sales tax on the end user, similar in concept to US sales and use tax, not to the VAT-style GST. PST is not recoverable through an ITC mechanism. It is a cost to the end customer, collected and remitted by the supplier.  

Current PST rates:  

• British Columbia: 7%;  
• Manitoba: 7%;  
• Saskatchewan: 6%.  

Alberta, the Northwest Territories, Nunavut, and Yukon have no provincial sales tax. A foreign company selling exclusively into Alberta faces only the 5% federal GST, which is one reason Alberta is a common first entry point for US companies testing the Canadian market.  

The $30,000 threshold: when registration becomes mandatory 

A foreign company that does not otherwise carry on business in Canada in the traditional sense is nevertheless required to register for GST/HST once its taxable supplies to Canadian customers cross CAD $30,000 over four consecutive calendar quarters. This threshold applies regardless of what you are selling: goods, services, digital products, or platform access, and regardless of whether you have a single employee or asset in Canada. 

Since July 1, 2021, this obligation has been extended and actively enforced across a broad range of business models, including suppliers of software, streaming, and cloud services; distribution and accommodation platform operators; and any foreign company selling goods or services to Canadian consumers without a physical Canadian presence. If your Canadian revenue is approaching or has crossed this threshold, registration is not optional. 

The ITC distinction that determines which regime to register under: Suppliers registered under the simplified registration regime, designed for non-resident companies without a traditional Canadian business presence, are not eligible to claim ITCs. Only suppliers registered under the regular GST/HST regime can recover input tax credits on Canadian expenditures. For corporations already carrying on business in Canada through a branch, subsidiary, or regular Canadian commercial activity, registration under the general regime is a legal requirement, and ITC access follows automatically. For companies below the mandatory threshold, voluntary registration under the general regime may unlock ITC recovery on Canadian expenditures, such as legal fees, consulting costs, trade show expenses, that more than justifies the compliance cost. 

Quebec’s regime operates in parallel and requires a separate registration assessment with Revenu Québec. The same voluntary registration logic applies for Quebec expenditures. 

Registration: subsidiary vs. branch, and the security deposit distinction  

The path to GST/HST registration differs depending on how you are operating in Canada, and one difference matters significantly to cash flow.  

Canadian subsidiary: A resident corporation registers for GST/HST purposes without posting security. Registration is straightforward and the subsidiary is treated as a Canadian person for GST purposes from the date of incorporation.  

Non-resident making taxable supplies in Canada: A non-resident is required to register for GST/HST when it makes taxable supplies in Canada and is not a small supplier, that is, when its total taxable supplies exceed CAD $30,000 over four consecutive calendar quarters. The trigger is the making of taxable supplies, not the carrying on of business in the income tax sense. These are distinct tests under distinct statutes, and a foreign company that has concluded it has no Canadian income tax presence should not assume it has no GST/HST registration obligation. A non-resident registrant without a permanent establishment in Canada must post security as a condition of GST/HST registration, a cash or bond requirement that can run to meaningful amounts depending on expected remittances. A non-resident with a permanent establishment in Canada, a fixed place of business through which it makes supplies, including an office, factory, branch, or warehouse, is permitted to register without posting security. The security posting requirement is a cash flow consideration that is frequently overlooked when foreign companies assess the cost of Canadian market entry. Budget for it before registration, not after. 

Voluntary registration: Even if a non-resident does not carry on business in Canada and falls below the registration threshold, voluntary registration for GST purposes is available, and may be commercially valuable if the company incurs GST on Canadian expenditures that it could recover through ITCs.

Past non-compliance: how to correct it? 

The good news is that past non-compliance is not a dead end. The CRA’s Voluntary Disclosures Program and Revenu Québec’s equivalent allow businesses to come forward, correct their position, and significantly reduce or eliminate penalties, provided they act before the tax authority contacts them first. A business that identifies a GST, HST, QST, or PST exposure has a window to fix it on its own terms. That window closes the moment an audit begins. 

Director liability: the exposure that reaches across the border  

Canadian GST/HST, like payroll source deductions, creates personal liability for directors of corporations that fail to collect and remit. A director of a Canadian subsidiary who allows GST/HST to go uncollected or unremitted can be assessed personally for the unremitted amounts, plus interest and penalties, subject to a two-year limitation period from the date they cease to be a director.  

This liability applies to non-resident directors of Canadian subsidiaries just as it applies to Canadian-resident directors. Foreign executives sitting on the board of a Canadian subsidiary carry this exposure. It is not theoretical, the CRA actively pursues director liability assessments where corporate collections are unrecoverable.  

What to do

Ensure your Canadian subsidiary has GST/HST compliance controls in place before the first taxable supply is made. Review director liability exposure at the time any executive is appointed to the board of a Canadian entity. 

How Miller Thomson can help  

Canada’s layered sales tax system, four parallel regimes, provincial variations, a digital economy overlay, and Revenu Québec operating independently from the CRA, is not a compliance exercise that responds well to assumptions imported from other jurisdictions. The cost of retroactive registration, interest, and penalties consistently exceeds the cost of getting it right at the start.  

Miller Thomson’s tax group advises foreign companies on Canadian sales tax registration, compliance structuring, ITC optimization, and CRA audit response across all provinces, including Quebec, where our Montréal practitioners work directly with Revenu Québec and advise on the QST dimension that firms without genuine Quebec capacity cannot fully address.  

Speak with a Miller Thomson Sales, Commodity and Indirect tax lawyer about the Canadian sales tax position.