Free course · Lesson 9 of 12 · 10 min
Sales tax, GST and HST basics
Sales tax you collect is not your money. It is held for the government until you file. How it works in the US and in Canada, with the entries and a worked GST/HST return.
Bookkeeping Basics / Lesson 9
- Explain why sales tax collected is a liability, not income.
- Know the basics of US sales tax: state rates and nexus.
- Know Canada's GST, HST, PST and QST and the small supplier threshold.
- Record tax on sales and purchases and work out a GST/HST return.
Tax collected is a liability
When you charge sales tax, you collect it on the government's behalf. It never belongs to the business, so it is not income. It goes into a liability account (sales tax payable, or GST/HST payable) and comes out again when you file and pay the return.
| Account | Debit | Credit |
|---|---|---|
| Accounts receivable (or Bank) | $540.00 | |
| Sales | $500.00 | |
| Sales tax payable | $40.00 | |
| Totals | $540.00 | $540.00 |
When you pay the $40 with your return: debit sales tax payable, credit bank. The 8% here is only an example.
United States: sales tax basics
- Sales tax is set by states, and often by counties and cities on top. As of mid-2026, 45 states and the District of Columbia have a statewide sales tax; Alaska, Delaware, Montana, New Hampshire and Oregon do not (though some Alaska localities do).
- You must collect a state's tax when you have nexus there: a physical presence (an office, employees, inventory) or, since 2018, enough sales into the state (economic nexus). Thresholds are set by each state; many use $100,000 of sales a year.
- Register with each state before you collect. Each state decides which goods and services are taxable and how often you file (monthly, quarterly or yearly).
- Sales tax you pay on your own business purchases is generally part of their cost. There is no refund mechanism like Canada's input tax credits. Goods you buy for resale are usually bought tax-free with a resale certificate.
Canada: GST, HST, PST and QST
| Where | Tax charged | Rate |
|---|---|---|
| Alberta, Northwest Territories, Nunavut, Yukon | GST only | 5% |
| Ontario | HST | 13% |
| Nova Scotia | HST | 14% |
| New Brunswick, Newfoundland and Labrador, Prince Edward Island | HST | 15% |
| British Columbia | GST + PST | 5% + 7% |
| Saskatchewan | GST + PST | 5% + 6% |
| Manitoba | GST + RST | 5% + 7% |
| Quebec | GST + QST | 5% + 9.975% |
- You must register for GST/HST once your taxable sales pass $30,000 in a single calendar quarter or over four consecutive quarters (the small supplier threshold). You may register earlier.
- You generally charge the rate of the province where the supply is made, which for goods is usually where they are delivered.
- Input tax credits (ITCs): unlike US sales tax, the GST/HST you pay on business purchases can be claimed back on your return. Keep the supplier's invoices showing their GST/HST number.
- PST in British Columbia and Saskatchewan and RST in Manitoba are filed with the province, QST with Revenu Québec. PST and RST paid on business purchases are generally not recoverable; QST registrants can generally claim back QST paid as input tax refunds.
Worked example: a quarterly HST return in Ontario
An Ontario business invoices $20,000 of taxable services in the quarter and charges 13% HST: $2,600. It buys $6,000 of taxable supplies and services and pays $780 HST on them.
| Line | Amount |
|---|---|
| HST collected on sales | $2,600.00 |
| Less: input tax credits on purchases | −$780.00 |
| Net tax to remit | $1,820.00 |
| Transaction | Account | Debit | Credit |
|---|---|---|---|
| Sales for the quarter | Accounts receivable | $22,600.00 | |
| Service income | $20,000.00 | ||
| GST/HST payable | $2,600.00 | ||
| Purchases for the quarter | Supplies and services (expenses) | $6,000.00 | |
| GST/HST payable (input tax credits) | $780.00 | ||
| Accounts payable or Bank | $6,780.00 | ||
| File and pay the return | GST/HST payable | $1,820.00 | |
| Bank | $1,820.00 |
After the payment the GST/HST payable account is back to zero for the quarter. If ITCs are bigger than the tax collected, for example in a quarter of heavy equipment buying, the CRA refunds the difference.
Key terms
Try it
- GST/HST calculator: Add or remove GST, HST, PST and QST for any province.
- US sales tax calculator: Statewide rates for every state, plus your local rate.
- GST/HST return guide: The return, line by line.
- How to set up sales tax: Tax codes, agencies and rates in your books.
Check your understanding
Pick an answer to see if it is right and why. Nothing is sent anywhere; your result is kept in this browser.
Sources
Figures as of October 25, 2026.
- CRA: GST/HST rates by province
- CRA: Register for a GST/HST account (small supplier threshold)
- CRA: Input tax credits
- Tax Foundation: State and Local Sales Tax Rates, Midyear 2026
Part of Bookkeeping Basics, a free course from AcboBooks LLC. General information, not tax, legal or accounting advice. Last reviewed October 25, 2026.