Managing your taxes as an entrepreneur can be intimidating. The rules and instructions are often complex. And if you don’t pay your taxes properly, you can end up facing penalties.
One reason taxes can seem so complex is because the rules vary by province. But once you learn the rules that apply to you and your business, you’ll see it’s not as complicated as it seems.
To help take some of the confusion out of paying your taxes, here’s what you need to know about Ontario tax rates. This guide will look at sales tax, corporate tax, and personal income tax information for entrepreneurs in Ontario.
Sales tax in Ontario
Ontario uses the Harmonized Sales Tax (HST). The HST was introduced in 2010, and it combined the federal goods and services tax (GST) retail sales tax (RST).
As a result, there’s just one Ontario sales tax rate you have to collect and pay. The HST rate is 13%.
Does your business need to collect HST?
You need to collect the HST if:
- You are not a small supplier.
- You make taxable sales.
Small suppliers are businesses that do not earn more than $30,000 within a one year period. If you are near the threshold, you should read the rules for when you should register to collect HST. You may be required to register within a month of when you exceeded $30,000 in income.
Most goods and services are subject to the HST, but there are exceptions. To help you find out if your business makes taxable sales, here are some examples of what’s exempt.
Tax-exempt goods and services
- Sale of existing housing
- Long-term rentals of residential accommodation (over one month)
- Health services
- Child care services
- Legal aid
- Many educational services
- Music lessons
In addition to tax-exempt goods and services, there are also some supplies that are “zero-rated,” meaning the Ontario tax rate is 0%. You don’t need to charge HST on these supplies, but you may be able to claim tax credits related to these sales.
- Basic groceries (milk, bread, vegetables)
- Agricultural products (grain, raw wool)
- Feminine hygiene products
- Farm livestock
- Fishery products
- Prescriptions and drug-dispensing services
- Certain medical devices (such as hearing aids and artificial teeth)
Register to collect HST
If your business sells taxable goods and is over the $30,000 small supplier limit, then you need to register to collect HST. You can register online, by mail, or by calling 1-800-959-5525.
You’ll just need to have some basic information ready such as a description of the business, the social insurance numbers of all the owners, and the annual revenue (or a reasonable estimate if it’s a new business).
HST is handled by the CRA. So to pay your HST, you need to file a GST/HST return with the CRA. There are a number of methods for doing that, including the GST/HST NETFILE online service or using the My Business Account online portal on the CRA website.
For more help, check out this guide for filing your first GST/HST return.
Out of province sales
You will need to charge a different sales tax rate if you sell to customers in different provinces. Typically will need to charge the applicable provincial tax rates for the province or territory in which the product is supplied to the customer.
For more details, take a look at Canada’s Place of Supply rules.
Ontario corporate tax rates
If your business is a corporation rather than a sole proprietorship, you’ll need to pay corporate tax. And there are two corporate tax rates you’ll need to know.
The Ontario tax rate for corporations is 11.5%. However, the Ontario Small Business Deduction (SBD) reduces that rate for the first $500,000 of income. The lower rate is currently 3.2%.
In addition, there’s a manufacturing and processing tax credit that lowers the Ontario corporate tax rate to 10%. Businesses can qualify for that credit if they are involved in manufacturing, processing, fishing, farming, mining, or logging.
Example tax calculation
For example, a corporation that made $650,000 in 2020 would pay the following corporate tax.
$500,000 taxed at 3.2% = $16,000
$150,000 taxed at 11.5% = $17,250
Ontario corporate tax credits
There are a number of tax credits for businesses in Ontario. These credits can help businesses lower costs, hire and train workers, and be more competitive. Here are some of the