The US and Canada may both have Federalism outlined as their constitutional structure. However, it obviously doesn’t mean they have the exact same tax system. For those businesses crossing the borders of US and Canada, it’s a must to be familiar with the tax system, probably with the help of a Cross Border Tax Specialist for both countries to avoid getting taxed higher than expected, or worse, getting double taxed.
For several years now, the US has rejected the value added tax (VAT) and has been imposing on sales tax where the percentage may vary on most states, thus an income tax on the national level. Businesses aren’t taxed on income but are taxed based on profit. This means that business expenses can’t be taxed at all. Companies may have a lot of ways to claim that what they make isn’t profit at all upon consultation of a Cross Border Tax Specialist with a lot of Cross Border Tax Services to choose from, most especially if the business may need to cross borders to expand their profit and get taxed the least way possible.
On the other hand, Canada follows the Goods and Services Tax (GST) or to other provinces, the Harmonized Sales Tax (HST), where these provinces combine their GST to their provincial sales taxes. Some provinces in Canada pay their Provincial Sales Tax (PST) and GST separately, so your business may have to charge, collect and remit PST and GST. However, there are also provinces that do not have PST, thus only charging, collecting and remitting for GST for your business. So your location for business will definitely matter in Canada.
While the sales tax in US may be similar to the GST in Canada, GST is a broad based tax consumption abided by the consumer. Likewise, the sales tax is abided by the business itself. The sales tax rate may vary on the classes of goods, thus many classes and services cannot be taxed. However, the GST, as the name suggests, is taxed on both goods and services with a flat rate. It’s a tax paid by the end user. The sales tax can apply to goods that may vary on rates, while the GST can apply to almost everything on a given set rate.
Your GST in Canada will also depend on how small or big your business is, so it’s best to get a Cross Border Tax Services from a tax specialist if you will relocate your business in Canada or maybe expanding from US to Canada and vice versa. There are also ways to get your business exempted from the GST, such as the businesses that are small suppliers do not have to charge for the GST. Whatever the case, it’s best to determine the taxes of the locations first before settling your business.