HST Overpayment: When the Wrong Province's Rate Gets Charged

The Problem: One Tax, Multiple Rates

Canada's harmonized provinces each set their own HST rate:

Non-harmonized provinces charge only 5% GST, with separate provincial sales tax where applicable (BC 7%, SK 6%, MB 7%).

How Overpayments Happen

Scenario 1: HST charged in a GST-only province

An Ontario-based vendor charges 13% HST on a service delivered to a customer in Alberta. Alberta has no provincial sales tax — the correct rate is 5% GST. That's an 8% overpayment.

Scenario 2: Wrong HST rate between harmonized provinces

A Nova Scotia vendor charges 15% HST to an Ontario customer. Ontario's rate is 13%. The 2% difference is recoverable.

Scenario 3: HST charged in a PST province

A vendor charges 13% HST on a delivery to British Columbia. BC uses GST (5%) + PST (7%) separately — HST should never appear. The PST component may not be recoverable as an ITC, but the overcollected HST portion is.

Place of Supply Rules

The correct tax rate depends on where the supply is made, not where the vendor is located:

• Tangible goods: Tax is based on the delivery destination
• Services: Generally based on the customer's business address (with exceptions for real property services, which use property location)
• Intangible property: Based on the customer's location

Scale of the Problem

In a typical AP ledger with 10,000+ transactions, we find HST overpayment errors in 2-5% of line items. At an average overpayment of $15-50 per error, a mid-size company can recover $3,000-$25,000 from this single error type.

How Input Recovery Catches This

• Type 1 Detection: Compares the tax rate on each invoice against the expected rate for the delivery province
• Type 4 Detection: Flags place-of-supply mismatches where the billed province differs from the service delivery location
• Rate tolerance of ±0.5% absolute / ±3% relative prevents false positives from rounding

Upload your AP data to see how much you're overpaying.