Tax can often be confusing for new business owners with GST Cheat Sheet. 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 Cheat Sheet 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 Cheat Sheet
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 you reach the $30,000 income threshold, you have 29 days from the date you reach it to register with Canada Customs and Revenue Agency (CCRA) in order to charge GST.
If you reach the threshold within 13 months or over four continuous quarters and one month, you still need to register.
Upon registering, you will receive a registration effective date. This date determines your eligibility for credits and when you become liable to collect GST/HST. You will also be issued a Business Number (BN) for CCRA to identify your business, which you will use every time you interact with them.
2. When is it time to file?
The amount of revenue you earn determines how often you need to file and report your GST/HST returns. In simple terms, lower profits result in less frequent filing, but you can choose to file more often if needed.
For example, if your revenue falls between $0 and $1,500,000, you must report annually, but you can opt to file monthly or quarterly.
A helpful tip: If your annual sales are under $500,000, request quarterly filing when you register to reduce paperwork.
If your revenue is between $1,500,000 and $6,000,000, you must file quarterly, but you can choose to file monthly. Revenue over $6,000,000 requires monthly reporting.
3. Can I deregister?
If you registered and sales drop below the threshold, you can deregister, but be aware of the conditions and things to watch out for.
You must have been a GST/HST registrant for at least one year for the CCRA to approve deregistration. The CCRA will also recover some of the input tax credits you claimed on items like property and inventory. The process is complex, so it’s best to consult a tax professional to assess the impact of deregistration before proceeding.
To deregister, you’ll need your Business Number (BN), the legal name of your business, the cancellation date, and the reason for closing the GST/HST account. Full instructions on how to deregister and close your account are available on the Canada Government website.
The Verdict?
Many businesses that aren’t required to register for the GST/HST choose to do so anyway. This decision often leads to more paperwork and the need to charge and remit the tax. However, some positive aspects come with it.
By registering early, these businesses can claim back the GST they paid on start-up purchases. Charging GST can also enhance credibility, making it appear as though the business earns more than the threshold amount annually.
Whether you choose to collect GST/HST voluntarily or are required to do so, you must register with the CCRA. You can register by visiting the nearest CCRA office, calling, 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.