What Is a VAT Number in Canada? Understanding Canada’s Tax Identification System

In Canada, businesses may encounter the term “VAT number” when dealing with international transactions, especially with clients or suppliers from countries that use VAT (Value Added Tax) systems. However, Canada does not have a VAT system like many European countries; instead, Canada uses GST (Goods and Services Tax) and HST (Harmonized Sales Tax). In this context, a VAT number in Canada refers to the Business Number (BN) issued by the Canada Revenue Agency (CRA) for businesses that need to collect and remit GST/HST.

The Canadian Business Number (BN), with its associated GST/HST program account, serves as Canada’s equivalent of a VAT number, enabling Canadian businesses to identify themselves for tax purposes both domestically and internationally.

Understanding VAT and GST/HST in Canada

To clarify the concept of a VAT number in Canada, it’s essential to understand how Canada’s tax system differs from VAT-based countries:

• VAT (Value Added Tax): In countries with VAT, a tax is added at each stage of the supply chain and passed on to the consumer, often requiring a VAT number for each registered business.
• GST/HST in Canada: Canada applies GST, a federal tax of 5%, and HST in some provinces, which combines GST with provincial sales tax. This system functions similarly but is structured differently from VAT.

In Canada, businesses need a GST/HST registration number rather than a VAT number, allowing them to charge and remit these taxes.

What Is a Business Number (BN)?

The Business Number (BN) is a unique identifier assigned to Canadian businesses by the CRA. This nine-digit number allows businesses to register for various tax accounts, including GST/HST, payroll, and corporate income tax. The BN is the primary way Canadian businesses identify themselves with the CRA for tax reporting and compliance.

• GST/HST Account Extension: For GST/HST, the BN has an extension that begins with “RT,” representing the GST/HST program. A full GST/HST number might look like 123456789RT0001, with “RT” indicating GST/HST registration.
• Using the BN Internationally: For Canadian businesses working with VAT-based countries, the BN with the GST/HST identifier (RT extension) acts as Canada’s VAT-equivalent number.

When a Canadian Business Might Need a VAT Number

Although Canada does not use a VAT number, certain international business activities may require Canadian businesses to understand or interact with VAT:

• Sales in VAT Countries: If a Canadian business sells goods in a VAT-based country, it may need to register for VAT in that country, obtaining a VAT number there for local tax compliance.
• Cross-Border Transactions: When working with foreign suppliers or clients, Canadian businesses may be asked for a VAT number, in which case the BN with GST/HST registration serves as an equivalent.

Registering for a GST/HST Number in Canada

To legally collect and remit GST/HST, Canadian businesses must register for a Business Number with a GST/HST account through the CRA. Here’s how to get started:

1. Register for a Business Number (BN): The CRA assigns each business a unique BN.
2. Add a GST/HST Account: Once registered, the GST/HST program account is created as an extension of the BN, effectively serving as the business’s “VAT number.”
3. Receive Your GST/HST Number: The full number, which includes the BN, “RT,” and four additional digits, is used for tax purposes.

Key Differences Between VAT and GST/HST

Though similar in purpose, VAT and GST/HST have differences that impact Canadian businesses working internationally:

• Application: VAT is a multi-stage tax applied at each point of sale, while GST/HST is charged directly to the end consumer.
• Collection: VAT requires separate VAT numbers in each jurisdiction, whereas Canada’s GST/HST is managed federally with provincial participation in some regions.
• Tax System: In Canada, HST combines provincial and federal taxes in participating provinces, simplifying the tax system compared to separate VAT rates across Europe.

Benefits of a Business Number with GST/HST Registration

For Canadian businesses, registering for a GST/HST number provides several benefits:

• Legal Compliance: Registering and remitting GST/HST ensures compliance with Canadian tax law.
• International Trade Compatibility: Using the BN with GST/HST as a VAT-equivalent number streamlines transactions with VAT-based countries.
• Input Tax Credits: Registered businesses can reclaim GST/HST paid on business expenses, reducing their overall tax burden.

Example of a Canadian “VAT Number” Format

For Canadian businesses, the GST/HST number format often looks like this:

• Example: 123456789RT0001

This format can be shared with foreign clients or suppliers needing a tax identification number, as it serves as the Canadian equivalent of a VAT number.

Conclusion

While Canada does not use a VAT number, the Business Number (BN) with GST/HST registration serves a similar function, identifying businesses for tax purposes domestically and in international dealings. This system allows Canadian businesses to operate within Canada’s GST/HST structure and engage smoothly in global trade. Understanding these distinctions helps businesses ensure compliance and clear communication with international partners.

Frequently Asked Questions

1. Does Canada have a VAT number?
   • No, Canada does not have VAT. Instead, businesses use a Business Number with GST/HST registration for tax purposes.
2. What is Canada’s equivalent of a VAT number?
   • The Business Number (BN) with GST/HST registration is the equivalent, used to identify Canadian businesses for tax.
3. How can I get a VAT number in Canada?
   • Canada doesn’t issue VAT numbers; instead, businesses register with the CRA for a BN and a GST/HST account.
4. When would I need a VAT number in Canada?
   • Canadian businesses may need the BN with GST/HST for international transactions or VAT registration in foreign countries.
5. What does a Canadian GST/HST number look like?
   • The format is 123456789RT0001, with “RT” indicating GST/HST registration for Canadian tax purposes.