Tax can often be confusing for new business owners. Take the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) for example – not everyone is required to charge it, and in some provinces it is combined with the retail tax into the HST.
GST is a 5% tax on most goods and services. Most Canadian businesses are responsible for collecting or remitting the GST / HST on taxable goods and services.
Even though taxes differ based on where your business is located, it is very important to know that the rules of when you start collecting are the same.
Federal rules start to apply when a province opts to combine its tax with the GST into the HST.
According to CanadaOne, for many companies, the biggest change when this happens is that products and services that might have been exempt under PST rules, but are taxable under GST rules, will most likely become taxable. Quebec is the only province that administers the GST / HST collection.
From our experiences, GST mishaps are some of the most common financial mistakes business owners make, along with poor record keeping and inappropriate classification of business and personal expenses.
Prerequisites to register for and collect GST
You must register for a GST/HST account if you are not a small supplier, and you make taxable sales, leases, or other supplies in Canada. The exception on the latter is if your only taxable supplies are of real property sold, other than through a business.
You are also required to collect GST if you operate a sole proprietorship, a partnership, or a corporation that has gross sales over $30 000 over four consecutive calendar quarters or in any quarter.
Sole proprietors that operate more than one business need to combine the income from all their businesses when determining the need to register for GST / HST. Meaning, if all your business’s collective income is more than $30 000, you would need to register for and charge GST / HST.
If your sales are less than the figure above, you are still able to charge and collect GST. If your business operates in a province that charges HST, the same rules apply. Remember that your gross revenues are based on when the money is invoiced and not when it is paid. Public service bodies (which include charities) do not have to register until the total revenues exceed $50 000.
Now let’s dive into the top 3 questions relating to GST.
1. When is it time to register?
Once your income reaches the $30 000 threshold, you have 29 days from the time you reached the threshold to register with Canada Customs and Revenue Agency (CCRA) to be able to charge GST.
If you achieve the threshold in 13 months, or in four continuous quarters and one month, you are then still required to register.
When you register you will have a registration effective date. This date establishes your eligibility for any credits, as well as when you are liable to collect GST / HST. You will also receive a Business Number (BN) for the CCRA to identify your business.. This number will be used every time you deal with the CCRA.
2. When is it time to file?
Different amounts of revenues determine the frequency of filing and reporting your GST / HST returns. Simply put, less profit means less frequent filing. The option is there, however, to file more often.
For example, if your revenue threshold is between $0 and $1 500 000 the required reporting time is annually, although you have the option to file monthly or quarterly reports.
A good tip is: If your annual sales are less than $500 000, ask for the quarterly filing option when you register to cut down on paperwork.
Between $1 500 000 and $6 000 000, the required reporting time Is quarterly, with the option to file monthly. Anything over $6 000 000 requires monthly reporting.
3. Can I deregister?
If you are registered and sales drop below the threshold you can deregister but there are conditions and things to look out for.
You need to have been a GST / HST registrant for at least a year for the CCRA to allow you to deregister. The CCRA will also ‘claw back’ some of the input tax credits that you claimed on things such as property and inventory. The process is complicated, and it is recommended that you get a tax professional to evaluate the impact of deregistration before moving on.
To deregister, you will need your Business Number (BN), the legal name of your business, the cancellation date, and the reason for closing the GST / HST account. The full instructions to deregister and close your account is available on the Canada Government website.
The Verdict?
Often businesses that are not required to register for the GST / HST do so anyway. This often means more paperwork and having to charge and remit the tax. However, there are also some positive aspects.
By registering early these businesses can claim back the GST they paid for start-up purchases. Charging GST can also add credibility – it then seems as if the business earns more than the threshold amount per year.
Whether your decision to collect GST / HST is voluntary or mandatory, you must register with the CCRA. Options for registration include visiting the nearest CCRA office, registering by phone, or registering online.
Have more questions?
Reach out to one of the small business accountants at Soleimani Accounting CPA, we’d be happy to answer any questions you concerning GSTs or the tax system in general. Call 604-781-2412, email, or schedule an appointment online.