Interprovincial Sales: Charging the Right Tax Rate – A Complete Guide by a Montreal CPA Firm Near You

Introduction

One of the most confusing parts of sales tax compliance in Canada is knowing which tax rate to charge when your customers live in different provinces. Whether you sell products online, provide digital services, operate a Canadian e-commerce store, or travel to different provinces for client work, you must apply the correct GST/HST (and sometimes PST/QST) rate based on complex place-of-supply rules. Charging the wrong tax—such as charging 5% GST instead of 13% HST, or failing to charge QST when required—can lead to costly reassessments, penalties, and interest. This guide provides a clear, authoritative explanation of interprovincial sales tax rules so your business charges the right rate every time.

Legal and Regulatory Framework

Interprovincial sales tax rules are governed by the Excise Tax Act, supported by the federal Place of Supply (GST/HST) Regulations, and, for Quebec, the Tax Administration Act. Key principles include:

1. GST/HST for Goods

For goods shipped within Canada:
• The tax rate depends on the destination province, not where the seller is located.
• Example: A BC business shipping goods to Ontario must charge 13% HST, not 5% GST.

2. GST/HST for Services

For services, the tax rate depends on the customer's province of residence, not where the service provider lives or performs the work.
• Ontario client → 13% HST
• Nova Scotia client → 15% HST
• Alberta client → 5% GST
• Québec client → 5% GST (and possibly QST)

3. QST for Quebec Clients

Businesses with significant activity in Quebec may need to register for QST, even if they are located in another province:
• QST must be charged on services supplied to Quebec residents if you are required to register.
• Some remote sellers must register under the Specified QST System.

4. PST/RST for Non-HST Provinces

British Columbia, Saskatchewan, and Manitoba operate separate PST/RST systems:
• Goods shipped into those provinces may require PST registration.
• Services are taxable depending on the province (Saskatchewan has the broadest PST on services).

These laws create the framework for charging the correct tax rate across provinces.

Key Court Decisions

Several significant court rulings clarify interprovincial sales tax obligations:

In Movies Plus Ltd. v. Canada, CRA reassessed GST collected at 5% instead of HST when goods were shipped into Nova Scotia. The Federal Court of Appeal upheld CRA’s decision, confirming strict place-of-supply rules.

In Revenu Québec v. HomeAway, the court affirmed Quebec’s right to impose QST collection obligations on remote sellers with digital supplies.

In Air Canada v. Canada, the Supreme Court confirmed that GST/HST is a strict liability tax—businesses must remit correct tax even if errors were accidental.

In Global Cash Access v. Canada, misclassification of supplies resulted in reassessments, emphasizing that businesses must apply correct tax rules regardless of administrative complexity.

These cases reinforce that mistakes in place-of-supply rules are costly and rarely forgiven.

Why CRA and Revenu Québec Target This Issue

Sales tax authorities aggressively monitor interprovincial transactions because errors are extremely common. They target businesses that:

• charge GST instead of HST for customers in HST provinces
• fail to register for QST while serving Quebec clients
• incorrectly apply GST/HST rules to digital services
• charge PST or HST incorrectly for goods shipped across Canada
• collect sales tax but fail to remit correctly
• underreport revenue based on bank deposits
• misclassify exempt vs taxable supplies

CRA also receives data from payment processors (PayPal, Stripe), e-commerce platforms (Shopify, Etsy), and marketplace facilitators (Amazon), making sales tax mismatches easily detectable.

Mackisen Strategy

At Mackisen CPA Montreal, we help businesses charge the correct tax rate for every customer in every province. Our structured approach includes:

• building a custom province-by-province tax matrix for your business
• identifying when you must register for extra-provincial taxes (QST, PST, or RST)
• applying place-of-supply rules correctly to goods, services, and digital products
• configuring Shopify, Amazon, Etsy, or invoicing systems to charge correct tax
• reviewing tax practices quarterly to prevent undercharging
• correcting GST/HST returns when errors have been made
• preparing documentation for CRA in case of audit
• training your staff on interprovincial tax compliance

This ensures your business avoids painful reassessments and remains fully compliant.

Real Client Experience

A BC online seller charged 5% GST on all orders. CRA reassessed her for uncollected HST on sales shipped to Ontario, PEI, and Nova Scotia. We corrected two years of returns, registered her for multi-province GST/HST compliance, and built a tax matrix for her Shopify store.

A consultant in Quebec charged GST only, unaware that QST applied. Revenu Québec audited and assessed QST owing. We registered her for QST and corrected her invoicing system.

A Manitoba business shipping goods to BC customers failed to collect BC PST. BC audited and assessed back PST. We prepared a voluntary disclosure and negotiated reduced penalties.

Common Questions

Businesses often ask whether the tax rate follows where the work is done. No—GST/HST follows the customer’s province.

Others ask whether digital services follow the same rules. Yes—digital services also follow customer location.

Some ask whether they must charge US customers tax. Generally no—exports are zero-rated.

Another question: Do e-commerce platforms charge the correct tax automatically? Only if configured correctly; many businesses make mistakes here.

Why Mackisen

With more than 35 years of combined CPA experience, Mackisen CPA Montreal helps Canadian businesses master interprovincial sales tax rules. Whether you sell across provinces or only occasionally serve out-of-province clients, our expert team ensures accuracy, compliance, and complete protection from CRA and Revenu Québec reassessments.