Sales taxes can be one of the most confusing parts of your growing freight brokerage or 3PL business to manage. This article goes through some of the basics in terms of taxes on freight in Canada.
"... in this world nothing can be said to be certain, except death and taxes." - Benjamin Franklin
Growing and managing a 3PL or freight brokerage isn't easy - from sales to operations it can be a challenge to navigate. However, there's nothing quite like the prospect of charging or filling taxes - and that's without the added complexity of doing it in freight.
While freight brokers and 3PLs operating in the US are fairly accustomed to not paying sales tax on transportation charges, this certainly isn't the case in Canada, where each province has its own specific set of taxation rules that need to be applied, on top of federal tax requirements as well.
Why is this important?
Well, if you've been charging a tax-inclusive amount to your Canadian customers (or not charging tax at all, in which case it would be treated as tax-inclusive), you could be leaving behind sizable margin or even taking a hidden loss once your accountants clean up the taxes due at the end of each year.
The burden on your accounting team is also a real concern - one of the benefits as an owner or operations-focused member of a 3PL or freight brokerage for understanding sales taxes is that you can communicate faster and more effectively with your accounting team. The better you can do your data entry for pricing, the easier it'll be for them to invoice at the end of the day.
So - what do Canadian taxes on freight and transportation look like?
First off, while we've researched the material in this article to the best of our knowledge - we should be clear that this guide to taxes in transportation should be seen as a starting point, and not a definitive source for information. If you need accounting help, it's best to consult either a professional chartered accountant or at the very least consult with the government of Canada's (and regional provincial governments') own online sources for this information.
With this being said, the first key thing to understand is the difference between GST (goods and service tax) and HST (harmonized sales tax) in Canada.
In short, according to the government of Canada's own website - "The goods and services tax (GST) is a tax that you pay on most goods and services sold or provided in Canada. In New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island, the GST has been blended with the provincial sales tax and is called the harmonized sales tax (HST)."
What this means is that GST is the general federal tax applied on most goods and services (there are quite a few exceptions but transportation is not one of them in Canada). Certain provinces, on the other hand, charge additional provincial taxes that are grouped with the federal GST to form a single HST that must be charged to customers.
Quebec meanwhile, has a separate system for their provincial tax calculations called QST (Quebec sales tax) that is charged alongside the federal GST.
Another key question many Canadian 3PLs and freight brokerages can struggles with is understanding which tax rates apply for a shipment. After all, a single shipment might encompass as many as 4 (or more!) different provinces - if you take into account the broker, carrier, shipper, consignee and end customer.
In Canada, the answer to this question, however, is fairly simple. Transportation of goods is taxed based on the delivery address of each shipment. For example, if a customer from Ontario ordered that goods be shipped from Toronto, ON to Montreal QC, the tax payable for this shipment would be those based on Quebec regulations, since the final delivery is in Quebec.
Want to download a cheat sheet for tax rates in Canada and the US for freight brokers and 3PLs? Check out our resource:
Most accounting software, including QuickBooks, give you a variety of tools to help you keep track of tax rates and pay the right amount at the end of the year.
With FreightPath's tax rate tracking and QuickBooks integration, you can make it even easier by integrating it directly with your TMS. Simply create the tax rates you use (for example, the flat 5% GST for freight delivered to Alberta) and sync it with Quickbooks.
What this will let you do is save on communication between sales and accounting - making sure the right shipments are invoiced with tax without any confusion or surprise to customers.
Learn more about FreightPath for invoicing here.