Are you self-employed or thinking about starting up your own business venture? Are you worried about the tax implications of your business? The rules of GST/HST can be complicated to understand, so let us break it down for you.
First of all, keep in mind that the current tax rates varies per province, which is broken down below:
- Alberta, British Columbia, Manitoba, Quebec, Saskatchewan, Northwest Territories, and Yukon have 5% GST
- Ontario has 13% HST
- New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island have 15% HST
A more detailed overview of collecting sales tax per province can be found here.
It Depends on the Business
Whether you have to charge GST/HST depends on the type of business you’re running. The good news is that charging/collecting GST/HST isn’t mandatory for all self-employed individuals. Thus, not all businesses are required to tax their goods/services. Why? Because not all goods/services are subject to GST/HST. The CRA categorizes goods and services into three distinct groups as follows:
- Taxable: GST/HST is charged/collected and tax credits may be claimed for GST/HST paid to produce your goods/services. Examples of taxable supplies include: advertising, hotel accommodation, legal and accounting services, and most products.
- Zero-rated: GST/HST is not charged/collected. However, you may still be able to claim tax credits (ITC) for GST/HST paid to produce your goods/services. Examples of zero-rated supplies include: most groceries, agricultural products, medical devices, and prescription drugs.
- Exempt: GST/HST is not charged/collected and you typically cannot claim any tax credits (ITC) for GST/HST paid. Examples of exempt supplies include: medical and dental services, child care services, music lessons, non-profits, and educational services.
It Depends on Your Total Sales Revenue
Despite most goods/services being subject to GST/HST, you may not be required to charge/collect GST/HST depending on your sales revenue. For most small business owners, you are generally not required to charge/collect GST/HST if you are considered a “small supplier”. Once your business reaches $30,000 in sales revenue over the span of a single quarter, even if it occurred in two separate years (ex. November 2018 – February 2019), you are no longer considered a “small supplier” and you must begin charging/collecting GST/HST.
Although, there are some situations where opting into the GST/HST program, even when you are not required to, is a smart decision. The first reason is to get organized with proper bookkeeping from the beginning. Or, if your early sales revenue indicate large growth, you should consider setting up your GST/HST account early. Planning ahead is something we always encourage small business owners to do.
How Do I Register?
Let’s assume you are no longer a small supplier (earning $30,000 in sales revenue or more) or want to plan ahead and voluntarily register early. At this point, you are required to register for a GST/HST account with the CRA and begin charging/collecting GST/HST. The registration process can be completed on the Business Registration Online (BRO) Program. In order to complete the application, you will need your Social Insurance Number, your business’ name and address, and information about your business.
What’s Expected Afterwards?
Once you have registered for your GST/HST account and begun collecting/charging GST/HST, you must explicitly inform your customers of your tax pricing scheme. In other words, whether GST/HST is included in the price or will be added separately. Moreover, the tax rate that your customers will be charged must be shown. Continuing further, you will now be required to submit a GST/HST return monthly, quarterly, or annually. To find out which your business qualifies for, speak to your accountant or bookkeeper.
Once you are required to collect GST/HST, proper bookkeeping becomes vital to avoid consequences. At UpSide Accounting, we help take away the stress of bookkeeping so you can focus on what you do best – passionately working on your business! Since we manage your books, you won’t have to constantly worry about when you will need to register for your GST/HST account and when to begin charging/collecting it. We don’t just quietly manage your books and taxes, we like to think of our team as your business confidant. Our team at UpSide walks you through this stressful process and towards the path of growth and success. To find out how we can help you, contact us and we would be happy to chat!