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Once upon a time you would have been able to decide to start a business and poof it’s done! These days however it feels like there are many hurdles we as business owners have to jump through before we can call ourselves “established”. One of these hurdles is GST / HST or sales tax. 

What is GST?

Lets get the basics down first! Goods and services tax (GST) is a value-added tax levied on most goods and services sold for domestic consumption. GST is paid by consumers, but it is remitted to the government by the businesses selling the goods and services. Some provinces use HST instead of GST, HST is Harmonized Sales Tax, a combination of GST & provincial sales tax. GST / HST  provide revenue for the government.

Diagram 1.1 GST Example

In the above diagram my business has collected $50 in GST through invoices to clients. It has then paid $25 in GST through invoices to suppliers. The remaining $25 collected is then remitted to the government.

Why did GST start?

Goods and Sales Tax was controversially introduced in Canada in 1991 by then prime minister Brian Mulroney. It was introduced in a bid to reduce the country’s deficit and favoured over other initiatives as studies showed a broad based consumption tax was the least disruptive in a free-market. It was also argued that it would allow the government to reduce income taxes, giving workers an added incentive.

In some provinces GST was replaced with HST, this was an attempt to combine the GST with PST. Not all provinces elected to combine these taxes which is why we have GST – the original tax, HST – the combined tax & PST – provincial sales tax. HST/GST are apart of the same system. 

When should I start charging GST / HST?

There are three questions you should consider before you register and charge GST.

1. Is the product or service you are providing exempt?

The CRA can help you determine if your product or service is taxable. You make taxable sales, leases, or other supplies in Canada (unless your only taxable supplies are of real property sold other than in the course of a business).

GST will be applicable for most professional consulting services, retail goods and other online services.

2. Is your client of customer located in Canada?

Rates will also be different across different areas of Canada and certain services provided to persons outside of Canada are also likely to be zero-rated, this includes advisory, professional and consulting services.

3. Are you considered a small supplier?

The CRA provides an exemption for small suppliers. The intention of the exemption is to; give new businesses time to register and to limit administration time for small businesses.

If you have just started your business, do not let GST delay your from invoicing your customers.

If you are currently a small supplier and intend to grow your business sales in excess of 30k per year you can register and start charging early! This will:

  • Set you up and position yourself as a legitimate business
  • Avoid the additional admin that comes with having to assess when your quarterly sales exceed the threshold and register for GST then.

How do I start charging GST?

Once you have determined that you need to charge GST, or that you would like to register early there are a few essentials:

  1. Visit the CRA website to register for a GST account, you will receive a registration number, the date you registered and the frequency you are required to file. (monthly, quarterly, yearly).
  2. If applicable notify your clients that you are now required to charge GST. (Sample Letter)
  3. Begin adding GST to all applicable invoices, GST should appear on your invoices as a separate line item. (Sample Invoice)
  4. Track all GST paid, and GST received either manually or through your accounting software.
  5. Complete and file a return, this can be done online via CRA.  (The CRA will send you a notice with instructions when it is time to file your return. Generally this will be one year from your registration date.

Who and how much?

All the specific amounts and conditions for charging GST are on the CRA website. Link here: https://www.canada.ca/en/revenue-agency/services/tax/businesses/topics/gst-hst-businesses.html

The amount to charge will be determined based on the place of supply and the type of supply, some supplies are zero-rated such as basic groceries.

Navigating GST/ Sales tax can be a daunting experience for business owners. It is just one of many financial aspects of small businesses and can be disastrous if not set up correctly the first time. Follow us for more tips and tricks on navigating the financial landscape ad getting your business set up correctly the first time.