Did you know that businesses are allowed to claim back the GST/HST they pay on goods and services through Input Tax Credit (ITC) and deduct it from the amount they send to CRA?
GST is a value added tax that was introduced in 1991 and is levied on supplies of goods or services purchased in Canada and includes most products with exceptions. Some provinces have elected to merge their provincial sales taxes with the Federal GST and created Harmonized Sales Tax (HST), the current rate for HST in Ontario is 13%.
Businesses that provide taxable goods and services are required – if they cross a certain threshold – to register and collect this tax on behalf of the government and send those taxes to Canada Revenue Agency (CRA) on specified intervals. Businesses are also allowed to claim back GST/HST they pay on goods and services through Input Tax Credit (ITC) and deduct it from the amount they send to CRA.
Who pays GST/HST?
Almost everyone has to pay GST/HST on purchases of taxable supplies of goods and services (other than zero-rated supplies).
Who charges GST/HST?
Generally, GST/HST registrants have to collect GST/HST on all taxable supplies of goods and services (other than zero-rated) they provide to their customers. However, there are some exceptions for sales of taxable real property, such as re-sell of residential properties.
Taxable goods and services
Most goods and services (including those that are zero-rated) supplied in or imported into Canada are subject to GST/HST, the rate varies depending on differences between provincial sales tax regulations for instance. Here are examples of goods and services for which a business must charge and collect GST/HST:
- Commercial real property and newly built residential real property;
- Rental of commercial real property;
- Sales and leases of automobiles;
- Clothing and footwear;
- Taxi, limousine, and ride sharing fares;
- Legal and accounting fees;
- Franchise fees;
- Hotel accommodation;
- Home and commercial renovation;
- Barber and hairstylist services
There are goods and services that are zero-rated, such as:
- Basic groceries;
- Agricultural products;
- Most farm livestock;
- Prescription drugs and drug-dispensing services;
- Medical devices such as hearing aids and artificial teeth;
- Exports (most goods and services for which a business charges and collect GST/HST in Canada, are zero-rated when exported)
A small number of goods and services are exempt from GST/HST – that is, no GST/HST applies to them. This means that a business does not charge their customers GST/HST on supplying these goods and services. Businesses involved is supplying these goods and services do not claim input tax credits (ITC) on their purchases. Examples of exempt goods and services include:
- Re-sale of residential real properties;
- Long-term residential accommodation and residential condominium fees;
- Most health, medical, and dental services performed by licensed physicians or dentists for medical reasons;
- Child-care services (day-care services provided usually for less than 24 hours a day) provided primarily to children 14 years old and younger;
- Most domestic ferry services;
- Legal aid services;
- Many educational services such as courses supplied by a vocational school leading to a certificate or diploma which allows the practice of a trade or a vocation, or tutoring services made to an individual in a course that follows a curriculum designated by a school authority;
- Music lessons;
- Most services provided by financial institutions such as lending money or operating deposit accounts;
- Arranging for and issuing insurance policies by insurance companies, agents, and brokers;
- Most goods and services provided by charities;
- Certain goods and services provided by non-profit organizations, governments, and other public service bodies such as municipal transit services and standard residential services such as water distribution
When to register for and start charging GST/HST?
You generally cannot register for a GST/HST account if you only provide exempt supplies.
You have to register for a GST/HST account if both situations apply:
- You make taxable sales, leases, or other supplies in Canada
- You are not a small supplier
What is a Small Supplier?
You are a small supplier if your revenue for your worldwide taxable supplies from all your businesses and those of your associates does not exceed the $30,000 threshold over 4 consecutive calendar quarters – Calendar quarters means a period of 3 months beginning on the first day of January, April, July, or October in each calendar year, then you do not have to register. You may, however, choose to register voluntarily.
In determining the total amount of revenues from taxable supplies (including zero-rated supplies) of property and services made inside and outside Canada by you and your associates, but do not include revenues from supplies of financial services, sales of capital property, and goodwill from the sale of a business.
If you exceed the $30,000 threshold in a single calendar quarter, then you are no longer a small supplier and must register for a GST/HST account, you also have to charge GST/HST on the supply that made you exceed $30,000 within the calendar quarter and any supply made after effective date of registration.
If you exceed the $30,000 threshold over the previous 4 (or fewer) consecutive calendar quarters (but not in a single calendar quarter), then, you are no longer a small supplier at the end of the month following the quarter in which you exceed $30,000 and need to register for the GST/HST account.
You have to start charging GST/HST on your taxable supplies starting on your effective date of registration.
Registering for GST/HST account
Effective date of registration
The effective date of registration may be different depending on the type of business you are registering. The effective date of registration is usually the day you stop being a small supplier. It can also be an earlier date (up to 30 days before this date).
If you are a taxi operator or commercial ride-sharing driver, your effective date of registration is the day you start supplying taxable passenger transportation services, even if you are a small supplier.
If you register voluntarily when you are still a small supplier, your effective date of registration is usually the date of your request. It may also be up to 30 days before that day.
Fiscal year for GST/HST purposes
Usually, your fiscal year for GST/HST purposes is the same as your tax year for income tax purposes. Generally, the tax year of the following persons is a calendar year (January to December):
- Individuals (sole proprietor) and certain trusts
- Professional corporations that are members of a partnership (such as lawyers. Accountants, or doctors)
- Partnerships, where at least one member of the partnership is an individual, a professional corporation or another affected partnership
Some persons use non-calendar tax year approved by CRA; in this case you may want to use that same year as your GST/HST year for your GST/HST fiscal year.
A corporation generally uses the same fiscal year for both income tax purposes and GST/HST purposes. However, if a corporation has a non-calendar tax year for income tax purposes, it can elect to use a calendar year for its GST/HST fiscal year.
Calculating total annual revenue for account registration purposes
To calculate total annual revenue, include revenues from:
- Your taxable sales, leases, and other supplies, including supplies that are zero-rated
- Taxable supplies of all your associates
Do not include revenues from:
- Exempt supplies
- Financial services
- Sales of capital property
- Goodwill from the sale of the business
If you are a new business and registering for GST/HST account, you can provide a reasonable estimate of your income for the year.
Basic information needed
If you are a business owner or a third-party requester, provide the last name(s) of the business owner(s)’.
For online applications, you must provide all of the following information about the business owner(s):
- Social Insurance Number (SIN)
- Date of birth
- Personal postal code (where you live)
You must provide the following information about your business:
- Business name
- BN (business number) if your business already has one
- Type of business or organization (such as sole proprietor, partnership, corporation, registered charity)
- Name and SIN of all owners
- Physical address
- Mailing address (if different from the physical address)
- Description of major business activity
How to register
You can register:
- By phone
- By mail or fax
- By telephone
- By using third-party service providers such as accountants and lawyers
Charging and Collecting sales tax
The place of supply (the place where you make your sale, lease, or other supply) affects the rate of tax charged. The rate for taxable supplies depends on the province or territory. The current rates are:
- 5% (GST) in Alberta, British Columbia, Manitoba, NWT, Nunavut, Quebec, Saskatchewan, and Yukon
- 13% (HST) in Ontario
- 15% (HST) in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
If provincial sales tax (PST) is charged in the place of supply, calculate the GST on the price without the PST.
Filing GST/HST return and paying (remitting) tax
You must file a GST/HST return even if you have no business transactions and/or no net tax to remit.
Filing and payment deadlines
Filing and payment frequency will be set at time of registration and can be changed either by request from the registrant or by CRA depending on revenue volume and your history of filing on time.
For monthly and quarterly filers, filing and payment deadline is by the end of the month following the month of reporting period.
For annual filers using calendar year as fiscal year-end (individuals), filing deadline will be June 15 and payment deadline will be April 30
For annual filers using a non-calendar year as fiscal year-end such as corporations that are not part of partnerships, filing and payment deadline will be by end of the third month after the end of fiscal year-end.
How to remit (pay) the GST/HST
There are three ways to make a payment:
- Remit electronically – through online or telephone banking with your financial institution. You do not need a remittance voucher to pay online. You may also remit electronically using CRA’s My Payment option, which lets individuals and businesses to make payments online from an account at participating financial institution using CRA website
- Remit at your financial institution in Canada – You can file your return electronically and pay the tax at your financial institution using a remittance voucher. If you are not filing your return electronically, you can file your return and remit the amount owing at your participating financial institution in Canada
- Send payment by mail – You can file your return electronically and pay the amount due by cheque or bank draft and mailing it out to your tax centre along with payment voucher. If you are not filing electronically, you can mail your return and payment to your tax centre. Make sure payment and report are sent before filing deadline
Payments of $50,000 or more must be paid electronically or at your financial institution.
Please note that the above information is intended as a general source of information and should not be considered as specific source of legal or financial advice. Rules and regulation are subject to change at any time, as we at MMS Accounting & Bookkeeping Services will help you registering for GST/HST account and filling your returns as required. Please call our office at 647.749.8798 or email us at email@example.com for further information.