Understanding the Basics of GST/HST for your business
Updated: Aug 10, 2019
In Canada, there are three kinds of sales tax that businesses need to charge their customers. Depending on your province and the goods or services your company is selling, following are the different kinds of sales tax:
GST (Goods and Services Tax)
PST (Provincial Sales Tax)
HST (Harmonized Sales Tax), combination of GST and PST
When do need to register and start charging GST/HST?
Your company makes taxable sales, leases or other taxable supplies in Canada.
You are not a small supplier.
What are Taxable Supplies?
Most goods and services in Canada are taxable supplies if they are made in the course of a commercial activity and are subject to have the full GST rate of 5% applied.
Some goods and services are considered as “zero-rated” supplies; which means they are taxable at the rate of 0%. Zero-rated supplies include basic groceries, prescription drugs, and some goods and services sold to customers outside Canada. Still other supplies are non-taxable, like daycare services and residential rent.
If your business sells taxable supplies in Canada (including zero-rates supplies), you must register for the GST/HST, unless you’re a small supplier.
What is a Small Supplier?
Being categorized as a small supplier depends on how much money your business makes. If your revenue from taxable supplies was equal to or less than $30,000 in both a calendar quarter and over the last year (the last four consecutive calendar quarters), your business is a small supplier.
If you are a small supplier, for the most part you don’t have to register for the GST or HST
How to calculate small supplier status?
For the end of each calendar quarter (March 31, June 30, September 30, and December 31, assuming a December 31 fiscal year end), total up your taxable sales for the four most-recent calendar quarters (the last 12 months). If the total is more than $30,000, your business is not a small supplier and must register to start collecting GST/HST.
How do you know what taxes to collect? (GST/HST, or GST and PST)
Depending on which province your corporation is registered and provides services, you may need to charge GST/HST or GST and PST.
Ontario, Nova Scotia, New Brunswick, PEI, Newfoundland, and Labrador have combined their provincial sales taxes with the federal GST to create their harmonized sales tax (HST).British Columbia, Saskatchewan, Quebec, and Manitoba have PST separate from the GST. Your corporation may need to collect and remit both PST and GST separately, using two different set of forms. (Find out more information on the rates in your province, visit http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rts-eng.html)Alberta and the three territories (Yukon, Northwest Territories, and Nunavut) don’t have a PST and only has to charge the GST.
What are Input Tax Credits (ITC’s)?
Input tax credit is a vehicle for businesses to recover the GST/HST paid or payable on purchases and expenses related to the legitimate business activities. You must be registered for the GST/HST to use Input Tax Credits. According to the CRA, the purchase or expense must be reasonable in quality and nature, as well as in cost.
According to CRA, here are some expense for which you cannot claim Input Tax Credits (ITCs):
certain capital property.
taxable supplies of property and services bought or imported to make exempt supplies of property and services.
membership fees or dues to any club whose main purpose is to provide recreation, dining, or sporting facilities (including fitness clubs, golf clubs, and hunting and fishing clubs), unless you acquire the memberships to resell in the course of your business
property or services you bought or imported for your personal consumption, use, or enjoyment.
Here is a link to find out whether your company is eligible to claim Input Tax Credits https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses/complete-file-input-tax-credit.html
Time limits on Unclaimed ITC’s
If you did not claim Input tax credits (ITCs) in their corresponding reporting period in which the purchases were made. As per CRA regulations, registrants can claim any unclaimed ITC’s within four years after the end of the reporting period in which the ITC could have first been claimed.
GST/HST Due Dates
Your payment deadline depends on your GST/HST filing period.
Monthly or quarterly reporting period: the GST/HST return must be filed, and any amount owing must be remitted, no later than one month after the end of the reporting period.
Annual reporting period: the GST/HST return must be filed and any amount owing must be remitted no later than three months after the end of the fiscal year.
If you are an annual filer and your net tax for your previous fiscal year is $3,000 or more, you may have to make quarterly instalment payments in the current fiscal year.
Advantages of registering for GST/HST account
As a new corporation, you will probably be spending more than you earn in the initial years of operations. Registering early for GST/HST allows you to recover all the GST/HST amounts spent during that time for business purposes, which could result in extra dollars in the company.
Charging GST/HST on corporations’ invoices also looks more professional and shows customers and clients that you run a serious business.
This publication has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The publication cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact your advisor or accountant to discuss these matters in the context of your particular circumstances. Vartika Satija, CPA, CA do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this publication or for any decision based on it.