It is very important to know that not every product that you sell has to have GST included in the selling price. The Income Tax Act outlines three categories where most goods and services fall into.
The first category is Exempt Supplies. This means that the product that you sell cannot include GST. You are also not allowed to claim GST input tax credits on your purchases from other vendors. Usually doctors, banks, music teachers and daycare centres are examples of businesses that are not allowed to charge GST.
The second category is Zero-Rated Supplies. These products include tax but at a rate of 'zero percent.' Common examples include fruits, vegetables, dairy products, sales to foreign countries and prescription medicine. All these items do include GST but at a rate of zero percent.
It is very important to distinguish between exempt supplies and zero-rated goods because with exempt supplies, you cannot claim GST input tax credits on your purchases at all, whereas if you sell zero-rated products, your business can still claim GST input tax credits on its purchases. That is why the distinction is important.
The third category is Taxable Supplies. If you see a product that does not fall into the Exempt or Zero-Rated category, then most likely it will be a taxable supply and you will have to charge 5% GST on the sale. But you will also qualify to claim GST input tax credits on your purchases.
