This article will provide an overview of GST/HST, a consideration for most businesses operating in Canada. Note that provincial sales tax (PST/QST) will not be discussed. If you are operating outside of Alberta, PST/QST may also be a consideration for your business.
Who Needs a GST/HST Number?
If you sell goods or provide services in Canada, you are required to collect sales tax from your customers. This applies whether you are a corporation, sole-proprietorship, or partnership. There are some common exceptions (including exempt or zero-rated supplies) where charging sales tax, and therefore opening a GST/HST number, is not required. Major exceptions include:
-Small suppliers (earning less than $30,000 in four consecutive quarters or a single quarter)
-Residential real properties (note that this is a complex area and often requires professional guidance)
-Health care (medical practitioners and medical devices)
-Child and personal care
-Exports out of Canada
The rules around the exceptions can be complex and we recommend talking to us to ensure we look at all the considerations that apply to your business.
If you start a business, whether it is a corporation, sole-proprietorship, or partnership, you would register for a GST/HST account with CRA. Registration can be done over the phone or online with CRA. As part of the business start-up process this may or may not have been done for you by your lawyer or accountant. You are then provided with a GST/HST number effective as of a certain date that you registered. Backdating is typically only allowed up to one month.
This GST/HST number is usually the same as your business number, except with RT 0001 at the end. As a corporation, you would typically register for your GST/HST number at the same time as your business number.
It is recommended that if a business anticipates having to charge sales tax in the future, a GST/HST number is registered, and sales tax is charged as early as possible to avoid forgetting to register later and facing penalties as a result. If you register, you must charge sales tax, even if you continue to meet the small supplier threshold indicated above.
How to Charge Sales Tax
When invoicing customers or clients, your GST/HST number, name of the customer/client, date of the transaction, amount and sales tax charged, and description of the services provided are all required on the document.
A rate of 5% should be used in Alberta, and in provinces with HST, the rate that is applicable in that province should be charged on the subtotal. If you are providing services or selling goods in another province with HST, that applicable rate must be charged, even if you are incorporated in Alberta.
Claiming Input Tax Credits
As a business that charges sales tax, you also have the ability to claim back the GST/HST you paid to your suppliers as input tax credits. This offsets the sales tax you have to remit to the government. If you are using a bookkeeping software it will often have a function to track sales tax on both the income earned and the expenses incurred to run your business. You will have to set up the GST/HST rate, and choose to apply GST/HST to those transactions where GST/HST has been collected and those where GST/HST has been paid. Note that forgotten input tax credits can always be claimed in future filing periods.
How to File
The accountant will typically file the GST/HST return when the year end compilation and tax returns are completed. This is often preferred and usually the most cost effective because of other adjustments the accountant prepares during the year end process.
Most businesses should be set up for annual filing (due three months after year end) unless they earn over $1,500,000 in annual sales. In this case the filing is required to be quarterly, or in the case of being over $6,000,000 in annual sales, monthly, both of which have filing due dates one month after the period end.
GST/HST Quick Method
The GST/HST Quick Method is an election for businesses with less than $400,000 in sales in a year. It is made with CRA and allows the actual GST/HST filing to be based on a calculation which excludes having to track and claim the input tax credits. In many cases for consultants, technical, and project professionals this election will save time and real tax dollars at the end of the day. Whether this is desirable for your business depends on specific circumstances and we recommend you talk to us for more details.
This is just a basic overview of GST/HST, and there are numerous complexities that can arise, particularly on real estate and certain exempt service transactions. We recommend discussing your business situation and needs with us to ensure you are compliant with GST/HST requirements.