Anybody doing business in Canada may be required to collect and remit sales taxes. Whether you are an individual, a corporation or even a charity, it is very important to understand your sales tax obligations.
The Goods and Services Tax (GST) is a federal tax charged on the supply of goods and services in Canada at a rate of 5%. Most provinces also apply a Provincial Sales Tax (PST) on these taxable supplies at rates ranging from 6% to 10%. The Harmonized Sales Tax (HST) is a single tax administered by the federal government which combines the GST and PST for all harmonized provinces. British Columbia, Manitoba, Quebec and Saskatchewan continue to administer their own PST programs and therefore have separate regulations and registration requirements. This letter will focus on the federal regulations with respect to GST/HST, but please contact us if you are doing business in any of the non-harmonized provinces and we would be happy to provide additional information.
There are four terms that are critical to understand how the GST/HST works and what your requirements are:
Taxable Supplies—goods and services that are subject to GST/HST. Generally, all goods and services supplied in Canada are taxable supplies unless a specific exemption applies under the Excise Tax Act.
Zero-rated Supplies—goods and services that are taxable supplies, but subject to tax at a rate of 0%. Common examples are basic groceries, prescription drugs, medical devices and most exports.
Exempt Supplies—goods and services that are not subject to GST/HST. Common examples are the resale or rental of residential housing, medical services, educational services and financial services.
Input Tax Credits—GST/HST paid on expenditures that can be deducted against the GST/HST collected on taxable supplies on your GST/HST return to determine the net amount owing or refundable.
Zero-rated supplies and Exempt supplies may seem to be the same on the surface. At the end of the day, GST/HST is not collected on these transactions. However, there is a significant difference between a supply that is taxable at a rate of 0% and a supply that is exempt from tax. GST/HST registrants can claim ITCs on expenditures incurred in respect of Zero-rated supplies while they cannot claim ITCs incurred in respect of exempt supplies. Therefore, if your business only generates revenue from Zero-rated supplies, you can register for GST/HST and receive a refund of all GST/HST paid by claiming ITCs your return. GST/HST paid in respect of exempt supplies is included in the expenses claimed on your income tax return.
Generally, you must register for a GST/HST account if both of the following situations apply:
You make taxable sales, leases, or other supplies in Canada.
You are not a small supplier. You are a small supplier if the supplies from all your businesses and those of your associates is $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters.
These rules apply to sole-proprietors, partnerships and corporations. Public service bodies have a limit of $50,000 during the same time periods. You will cease to be a small supplier once you exceed the threshold above. Your effective date of registration is determined in two ways based on the number of quarters it takes to exceed this threshold.
If you exceed the threshold amount in one calendar quarter, you are considered a registrant and must collect GST/HST on the supply that made you go over the threshold amount. Your effective date of registration is the day of this supply. You must register within 29 days from that day.
If you are under the threshold amount in one calendar quarter, but you are over the threshold during four (or fewer) consecutive calendar quarters, you are a small supplier for those calendar quarters and a month following those quarters. Your effective date of registration would be the day the first supply was made after you cease being a small supplier. You have 29 days from this day to register for the GST/HST.
You may also voluntarily register for GST/HST anytime even if you are below the small supplier threshold. This may be beneficial if you expect to pay a significant amount of GST/HST on your purchases, particularly if you are making zero-rated supplies as discussed above.
As of your effective date of registration, you will need to charge GST/HST at the applicable rate on all your taxable supplies. Your GST/HST number and the amount of taxes charged must be clearly stated on all invoices. You will be required to file returns on a monthly, quarterly or annual basis depending on your total annual revenues. The fiscal year-end for GST/HST typically aligns with your fiscal year-end for income tax purposes. This would generally be December 31st for individuals and partnerships but may be different for corporations.
We would be happy to assist you in completing the registration process and provide additional information, and what to do next as a new GST/HST registrant.
For more information, please contact firstname.lastname@example.org or 1 844-GYTD-CPA