Articles

Published October 2003

Demystifying the GST / HST: Canadian Tax Essentials for Business

By Michelle Collins

The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are often confusing for new business owners. Not everyone is required to charge it, and in some provinces it is combined with the retail tax into the HST.

We created this primer to help you understand ins and outs of both the GST and HST.

While the taxes differ based on the province where you operate your business, what is important to know is that the rules of when you need to start collecting are the same. When a province opts to combine its tax with the GST into the HST, federal rules apply. 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.

When to Collect the GST/HST
Essentially if you operate a sole proprietorship, a partnership, or a corporation that has gross sales over $30,000 in a fiscal year you are required to collect GST on behalf of the federal government. If your sales are less than $30,000 you can still charge and collect GST. If you are in a province that charges HST, the same rules apply.

Things to note:

  • When determining whether or not you need to register for the GST/HST, you need to look at your income in consecutive quarters.
  • Your gross revenues are based on when the money is invoiced, not when it is paid.
  • If your income exceeds the $30,000 threshold for any four consecutive quarters, or in any quarter, you must register.
  • Sole proprietors operating more than one business must combine the income from all businesses when determining if they need to register for the GST/HST.

    For example, if one business had total revenues (before expenses) of $20,000 and a second business had total revenues (before expenses) of $12,000 in four consecutive quarters, you would need to register for and charge the GST or HST.

  • If you are a public service body, such as a charity, you do not have to register for the GST until your total revenues exceed $50,000.

Time to Register
What if you reach the threshold and you aren't collecting GST / HST? You have 29 days from the time that your revenues reached $30,000 to register with Canada Customs and Revenue Agency (CCRA) so that you can charge GST.

If you achieve the $30,000 threshold in 13 months, or in four continuous quarters plus one month then you are required to register. For example, if you make $28,000 from October 2010 to September 2011, and make the remaining $2,000 in October 2011 you are now required to collect GST / HST. You then have 29 days from the date that your business earned $30,000 to register.

When you register you will have a registration effective date. This date establishes:

  • when you become eligible for any credits
  • when you are liable to collect GST/HST.
Pros and Cons
Often businesses that are not required to register for the GST / HST do so anyway.

On the positive side, registering early means you can claim back the GST / HST you paid for start-up purchases. For some businesses charging the GST / HST adds credibility, as customers won't know that the company is earning less than $30,000 a year.

On the down side, being registered means that you have extra paperwork to do. And of course, you also have to charge and remit the tax.

Provincial breakdown

Province GST PST HST
British Columbia

X
Alberta
X


Saskatchewan
X
X

Manitoba
X
X

Ontario
 
 
X
Quebec*
X
X

Newfoundland


X
New Brunswick


X
Nova Scotia


X
PEI*
X
X

Yukon
X


NWT
X


Nunavut
X


This chart offers a quick look at which taxes each province charges.

In Saskatchewan, PST and GST are collected separately.

*In Prince Edward Island and Quebec the PST is charged on the final sale price plus the GST. In other provinces that levy a provincial sales tax, both the GST and PST are charged on the final sale price.

Here are two examples that illustrate how this works.

SK Sale (PST Rate: 5%)
Final price: $10.00
GST: $0.50 ($10 x 0.05):
PST: $0.50 ($10 x 0.05):
Total price: $11.00

PEI Sale (PST Rate: 10%)
Final price: $10.00
GST: $0.50 ($10 x 0.05):
Sub-total: $10.50
PST: $1.05 ($10.50 x 0.10):
Total price: $11.55


Registering
Whether your decision to collect GST / HST is voluntary or mandatory, you must register with the CCRA. You have several options for registration, visit the nearest CCRA office, by phone, or online.

Once you are registered you will receive a Business Number (BN). This number will then be used to identify your business every time you deal with CCRA, including submitting your GST/HST returns. You will also be given a reporting schedule for how often the GST / HST you collect must be submitted.

When to file: submitting GST / HST

Your total revenues will determine how often you will have to report your GST / HST returns. The smaller your profits the less frequently you need to file. However, you do have the option of filing more often if you prefer. This chart illustrates your requirements:

Revenue Threshold Required Reporting Time Optional Reporting Time
$0 - $1,500,000 Annually Monthly or Quarterly
$1,500,001 - $6,000,000 Quarterly Monthly
Over $6,000,000 Monthly Not Applicable



Tip: if your annual sales are less than $500,000, ask for the quarterly filing option when you register to cut down on paperwork.

Deregistering for the GST/HST

What if you are registered for the GST/HST sales drop below the "small supplier limit calculation" of $30,000 in any single quarter or four consecutive quarters? Can you deregister your account?

The answer is yes, with some conditions and cautions.

CRA will only allow companies to deregister if they have been a GST/HST registrant for at least one year.

They will also 'claw back' some of the input tax credits you claimed on a variety of property, including real property (like real estate and computers) and inventory. It is a bit complicated and we would recommend you have a tax professional evaluate the impact of deregistration before going ahead.

Essentially, on the day you cease to be a registrant, CRA will treat the deregistration as though you have sold off assets and inventory in the business. A full explanation of this can be found through the Capital property held at the time of closing a GST/HST account document on the CRA website. They also have a special memorandum, G400-3-1 Becoming and Ceasing to Be a Registrant on this topic.

The type of business you operate may also be important, as there are some differences in how the assets are treated depending on whether you are incorporated or a sole proprietorship / partnership.

A CRA representative explained that an incorporated company is deemed to have sold all of its applicable assets upon deregistration, while sole proprietorships and partnerships may have other options for the disposal of property, since the person and the company are the same entity. Again, we recommend that seek expert help to minimize the tax inpact/burden on your company.

To close your account you will need to fill out the Request to Close Business Number (BN) Program Accounts form.

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Categories: money, accounting, taxes, starting a business

Author Info

Michelle Collins is a CanadaOne® staff writer.