GST is a tax on goods and services, collected at each stage of production and sale

GST stands for Goods and Services Tax. It is a tax added to the price of most goods and services you buy. The tax is collected by businesses at the point of sale and sent to the government. GST applies in Canada, Australia, New Zealand, and several other countries, but not in the United States — the U.S. uses sales tax instead.

The core idea behind GST is that tax is paid each time a product or service changes hands, but only on the value added at that stage. A manufacturer pays GST on raw materials, then charges GST when selling to a wholesaler. The wholesaler pays that GST but charges GST again when selling to a retailer. The retailer pays GST and charges it to you, the final buyer. Each business gets a credit for the GST it paid, so the tax doesn't stack up — only the end consumer bears the full cost.

The rate and rules for GST vary by country. In Canada, the federal GST rate is 5 percent, though some provinces add a provincial sales tax on top. In Australia, GST is 10 percent. New Zealand's rate is also 15 percent. The rate you pay depends on where you live and what you are buying.

Key Takeaways

  • GST is a tax on goods and services collected at the point of sale, with rates varying by country and sometimes by province or state.
  • Businesses collect GST from customers but receive credits for GST they paid on their own purchases, so the tax ultimately falls on the final consumer.
  • Most goods and services are taxable, but some items like basic groceries, prescription medications, and medical services are often exempt.
  • GST is different from sales tax used in the United States, which is collected only at the final sale rather than at each stage of production.
  • If you run a business, you must register for GST once your revenue crosses a threshold set by your country's tax authority.

What is and isn't taxed under GST

Most goods and services are subject to GST, but there are important exceptions. In Canada, basic groceries — bread, milk, eggs, vegetables, and meat — are zero-rated, meaning GST does not explore. Prepared foods, restaurant meals, and snack foods are taxed. Prescription medications are exempt, but over-the-counter drugs and vitamins are taxed. Medical and dental services are exempt, but cosmetic procedures are not.

Housing is treated differently depending on whether it is new or used. In Canada, new residential housing is exempt from GST, but used homes are not taxed because the original sale already included GST. Rental housing is exempt. Financial services like banking, insurance, and investment information are exempt from GST in most countries that use it.

Education and childcare services are often exempt or zero-rated. Public transit passes may be zero-rated in some provinces. The rules change by location, so what is exempt in one province or country may be taxed in another. Your local tax authority publishes a full list of what falls into each category.

How GST is calculated and charged

GST is calculated as a percentage of the price before tax. If an item costs $100 and GST is 5 percent, the tax is $5, making the total $105. The business adds this amount to your bill at checkout or on your invoice. For most purchases, you see the total price including GST on the receipt.

For businesses, GST works differently. A business collects GST from its customers but also pays GST when it buys goods or services for its operations. At the end of each reporting period — usually monthly or quarterly — the business calculates the difference between GST collected and GST paid. If it collected more GST than it paid, it sends the difference to the tax authority. If it paid more GST than it collected, it receives a refund. This system ensures GST is paid only once, by the final consumer.

The reporting period and payment important date depend on your country and the size of your business. In Canada, most businesses report and pay GST quarterly, though large businesses may report monthly. Australia requires monthly or quarterly reporting depending on turnover. You must keep records of all GST collected and paid to support your returns.

Who must register for GST and when

Not every business needs to register for GST. There is a revenue threshold below which registration is not required. In Canada, you must register once your revenue reaches $30,000 in any four consecutive quarters. In Australia, the threshold is $75,000 in annual turnover. In New Zealand, it is $60,000. Once you cross that threshold, registration becomes mandatory.

Some businesses can choose to register even if they are below the threshold. This is useful if you buy a lot of goods or services for your business, because registration lets you claim credits for the GST you pay. If you do not register, you cannot claim those credits, so GST becomes a cost to your business rather than a tax that passes through to customers.

Registration is done through your country's tax authority. In Canada, you register with the Canada Revenue Agency. In Australia, it is the Australian Taxation Office. In New Zealand, it is Inland Revenue. The process is usually done online, and registration takes effect on the date you explore or a date you choose, as long as it is not more than 30 days in the future.

GST refunds and credits for businesses

Once registered, a business can claim a credit for GST paid on purchases used in the business. This includes materials, equipment, rent, utilities, and professional services. The credit reduces the amount of GST the business owes to the government. If credits exceed the GST collected in a period, the business receives a refund from the tax authority.

Not all purchases may have access to for a credit. Personal expenses, entertainment, and some vehicle costs have limited or no GST credit. Goods and services used partly for business and partly for personal use may only may have access to for a partial credit. You must keep invoices and receipts showing the GST paid to claim credits.

Businesses that export goods or services may be zero-rated, meaning they charge no GST but can still claim credits for GST paid on inputs. This makes exports cheaper for foreign buyers and supports businesses selling internationally. The rules for what qualifies as an export vary by country.

How GST differs from sales tax in the United States

The United States does not use GST. Instead, it uses sales tax, which is collected only at the final point of sale to the consumer. Sales tax rates vary by state and sometimes by city, ranging from 0 percent to over 10 percent. Unlike GST, sales tax is not collected at each stage of production, so there is no credit system for businesses.

This means U.S. businesses pay sales tax on their purchases and cannot recover it. GST countries avoid this by allowing businesses to claim credits. The result is that GST is generally considered more efficient because it does not tax the same value multiple times.

Some U.S. states are considering GST-like systems, but as of now, sales tax remains the standard. If you are comparing tax systems across countries, remember that a 5 percent GST in Canada is not directly comparable to a 5 percent sales tax in a U.S. state, because the way the tax is structured and collected is different.

GST on online and cross-border purchases

GST rules for online shopping depend on where the seller and buyer are located. If you buy from a business in your own country, GST is added at checkout just as it would be in a physical store. If you buy from a business in another country, the rules are more complex.

Many countries now require foreign online sellers to register for GST and charge it on sales to their residents. This means if you buy from a U.S. seller while living in Canada, the seller may be required to charge Canadian GST. However, enforcement varies, and some foreign sellers do not comply. If GST was not charged, you may owe it to your tax authority, though in practice this is rarely collected from individual consumers.

For goods shipped into a country from abroad, GST is usually charged at the border when the package arrives. If you order something from overseas and it is subject to GST, the courier or postal service collects the tax before delivering it to you. The amount depends on the declared value of the goods and the GST rate in your country.

Frequently Asked Questions

Is GST included in the price shown on store shelves?

In most countries with GST, the price shown on shelves does not include GST — it is added at checkout. In some cases, stores display both the price before tax and the total with tax. Check your receipt to see the GST amount charged. This is different from some countries where tax is included in the displayed price.

Can I claim GST back if I am a tourist visiting a GST country?

Some countries offer GST refunds to tourists on goods purchased during their visit. Canada and Australia have tourist refund schemes, though the rules and minimum purchase amounts vary. You typically need to keep receipts and explore for the refund before leaving the country. New Zealand does not offer a tourist GST refund.

What happens if a business does not register for GST when it should?

Operating without registering when required can result in penalties, interest on unpaid GST, and back taxes owed to the tax authority. The business may also face legal action. If you think you should be registered, contact your tax authority to register as soon as possible.

Do I pay GST on services like haircuts or car repairs?

Yes, most personal services including haircuts, car repairs, plumbing, and home cleaning are subject to GST. The tax is added to the service fee. Some services like medical and dental care are exempt, but cosmetic services are taxed.

How often do GST rates change?

GST rates are set by government and do not change frequently. In Canada, the federal rate has been 5 percent since 2006. Rates can be changed by new legislation, but this is rare. Check your tax authority's website for the current rate in your location, as provincial or state rates may differ from the federal rate.