SaaS vs Sales Tax: Are You Charging the Right Rates?

SaaS is booming — not just in Canada, but worldwide. Whether it’s a project management tool or a niche industry platform, more and more businesses are moving to the cloud. But while using SaaS is easy, figuring out how to handle sales tax for it? Not so much.

One of the most common questions we hear from SaaS providers is: “Do I need to charge GST/HST or PST on my software subscriptions?” The answer? It depends — on where your customers are, what your software does, and how your service is delivered.

Let’s break it down so you can be sure you're charging the right rates — and staying on the right side of Canadian tax law.

What Is SaaS from a Tax Perspective?

SaaS refers to the delivery of software over the internet. Customers typically pay a subscription fee for access rather than buying a physical product or a software license.

From a tax standpoint, Canadian authorities generally view SaaS as a “taxable service” or, in some cases, a “taxable intangible” — not a physical good or traditional software license.

Federal Tax: GST/HST on SaaS

If you're selling SaaS to customers in Canada, the Canada Revenue Agency (CRA) generally expects you to charge GST or HST. The exact rate depends on where your customer is located — and yes, it can vary quite a bit from province to province.

Example:

• A non-resident SaaS company in the US sells to a customer in Ontario.
• It must charge 15% HST on the subscription.
• If it sells to a customer in Alberta, it charges only 5% GST.

Important: The tax is based on the customer’s location, not the seller’s.

Provincial Tax: PST, QST, and RST Rules for SaaS

Some provinces have separate provincial sales taxes in addition to GST. And yes, SaaS is often caught in their net too.

Québec (QST):

• Non-resident and Canadian SaaS providers must register and charge QST if they exceed $30,000 in Québec sales annually.
• This applies even if you don’t have a physical presence in the province.
• QST is charged at 9.975%, and registration is required through the Specified Digital Platforms regime or the general system depending on your business type.

British Columbia (PST):

• As of April 2021, B.C. expanded its PST rules to include SaaS and other digital services.
• If you provide access to software in B.C., you likely need to charge 7% PST in addition to the 5% GST.

Saskatchewan (PST):

• SaaS is generally taxable under Saskatchewan's 6% PST.
• The province requires out-of-province sellers to register and collect PST if they exceed a $10,000 sales threshold to SK customers.

Manitoba (RST):

• Current Status (Until December 31, 2025): Accessing software hosted on servers outside Manitoba is not subject to RST.
• Effective January 1, 2026: Charges for accessing software, regardless of server location, will be subject to 7% RST if the service is consumed by a user in Manitoba.

Are You Charging the Right Rates?

Here are some questions every SaaS company should ask:

• Do I know where all my Canadian customers are located?
• Have I registered in provinces that require it?
• Am I charging the correct GST/HST/PST/QST rates based on customer location?
• Am I using a platform like Stripe or Shopify — and are they collecting tax properly for me?
• Have I reviewed whether any part of my SaaS might be tax-exempt (e.g., educational software)?

Compliance Pitfalls to Avoid

SaaS companies often fall into one of these traps:

1. Assuming SaaS is always zero-rated or exempt. It's not — in most provinces, it’s fully taxable.
2. Only charging GST. You may also be on the hook for QST, PST, or RST depending on where your customers are.
3. Relying on platforms without verifying. Marketplaces like Shopify or Stripe may not cover all tax obligations — especially for off-platform sales or B2B invoices.

How We Can Help

Navigating SaaS taxation across Canada is complex — especially if you sell nationwide or cross-border. At Blutax, we help SaaS businesses:

• Determine whether your software is taxable or exempt.
• Register for GST/HST, QST, PST, and RST where required.
• Charge the correct rates based on your customer base.
• Deal with CRA or Revenu Québec audits and voluntary disclosures.
• Apply for official tax rulings if your software’s classification is unclear.

Conclusion: Don’t Let Sales Tax Slow Your Growth

SaaS is all about scaling. But ignoring your tax obligations can lead to costly back taxes and penalties. With the right setup, you can stay compliant — and focus on growing your business.

Have questions about SaaS tax rules in Canada? We’re here to help. [Contact us] today for a free consultation and ensure you’re charging the right rates, the right way.