When you're running a small business in Canada, GST/HST doesn't directly apply to wages you pay employees. However, the tax does affect how you handle certain payroll-related expenses, reimbursements, and business costs that feed into your overall tax position. Understanding this intersection helps you avoid overpaying taxes and ensures your payroll accounting stays compliant with CRA rules. Employee salaries and wages are not subject to GST/HST. You don't charge your employees tax on their paycheques, and you can't claim GST/HST credits on the wages themselves. This is straightforward, but it's where many small business owners get confused about what expenses they can recover. What matters is what you buy to support your payroll: - Payroll software subscriptions (subject to GST/HST) - Accounting services for payroll processing (subject to GST/HST) - Office supplies used in payroll administration (subject to GST/HST) - Uniforms or protective equipment provided to employees (may be subject to GST/HST) Each of these has a GST/HST component that you may be able to claim back as an input tax credit if you're registered. This is where things get tricky.
No. Employee salaries and wages are never subject to GST/HST. You pay wages without any tax component, and employees don't have GST/HST deducted from their paycheques.
Yes, if you're registered for GST/HST. Services like payroll processing software and accounting support are taxable services. You can claim the GST/HST paid on these as input tax credits.
The reimbursement itself is not taxed. However, if the original expense included GST/HST, you can claim that tax back on your GST/HST return. Always get the original receipt from your employee to show the GST/HST amount.
No. You can only claim 50% of the GST/HST paid on meals and entertainment, even if you're registered. This limitation applies whether you're buying lunch for the team or reimbursing employees for business meals.
No. Group health insurance premiums and dental plans are exempt from GST/HST. You can't claim input tax credits, but you can deduct the full cost as a business expense.