GST/HST and QST Considerations For New Business Owners

Apr. 12

The Goods and Services Tax/Harmonized Sales Tax or GST/HST is a consumption tax that is charged on most goods and services sold within Canada, regardless of where your business is located. Subject to certain exceptions, all businesses are required to charge GST and HST , generally depending on the province in which they are located. Whenever someone starts a business, they are effectively designated as an agent for Revenue Canada which means that they are required to collect sales tax on CRA’s behalf and then remit them on a periodic basis, which can be annually, quarterly or monthly. Businesses are also permitted to claim the sales taxes that they paid on expenses that relate to their business activities. These are referred to as Input Tax Credits or ITCs.

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Does Your Business Need to Register?

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine how the GST/HST and relevant provincial taxes apply to them. Essentially, all businesses that sell goods and services in Canada are required to charge GST, except in the following circumstances:

Estimated sales for the business for 4 consecutive calendar quarters is expected to be less than $30,000. CRA views these businesses as small suppliers and are therefore exempt.
The business activity is exempt from GST/HST. Exempt goods and services includes residential land and property, child care services, most health and medical services etc. A comprehensive list can be found here
The business activity is Zero rated for GST/HST purposes

Although a small supplier, i.e. a business with annual sales less than $30,000 is not required to file for GST, in some cases it is beneficial to do so. Since a business can only claim Input Tax Credits (GST paid on expenses) if they are registered, many businesses, particularly in the start up phase where expenses exceed sales, may find that they are able to recover a significant amount of taxes. This has to be balanced against the potential competitive advantage achieved from not charging the GST, as well as the additional administrative costs (hassle) from having to file returns.

How to Register anywhere in canada (Except Quebec):

Prior to registering, you should ensure that they have all the necessary information including the name, location, organizational structure and fiscal year end of your business.

Per the CRA Website, you can register in the following ways:

By internet using Business Registration On line (BRO). If you are a non-resident you cannot register this way.
By calling our Business Enquiries line at 1-800-959-5525.
By mailing or faxing a completed Form RC1, Request for a Business Number (BN) to your tax services office.

How to Register in Quebec:

Both the GST/HST and QST are administered by Revenue Quebec. You must only fill out the relevant GST-QST section in form LM-1-V, which can be done at the time of registering your business or any time after, when you decide to register for GST-QST.

Alternatively, the GST and QST registration can be done online . Information required includes the notice number of the most recent notice of assessment, Quebec Enterprise Number (NEQ) and the CRA business number

How Often Should You File Your GST/QST:

Revenue Canada allows the GST returns to be filed monthly, quarterly or annually, depending on your annual sales. If sales are less than $1.5 Million you can choose to file annually or more frequently. Businesses with sales exceeding $6 million MUST file monthly.

Since sales taxes can accumulate leading to a significant liability, it might make sense to choose a more frequent filing period, if you feel like you might be lacking the discipline to segment the funds. Additionally a more frequent filing period can be advantageous if you expect to have more expenses than sales, since your business will be entitled to a refund.

An annual filing period is convenient if you only do your bookkeeping sporadically, since interest and penalties are charged on balances owing for late filings. Another benefit of an annual reporting period is that you can invest the GST collected in an interest bearing account until due. Note that business choosing an annual filing period might have to pay quarterly instalments to avoid interest if their GST and QST each exceed $3k in sales.

Regardless of which filing frequency is selected, it is important to ensure that you maintain complete and accurate accounting records and you choose an accounting software that is able to calculate and track GST (thereby allowing for easy and efficient handling of the inevitable requests for information and tax assessment). Ideally the software will also generate sales tax reports that can be easily transcribed. Although returns can currently be filed manually or online, it is generally more expedient to file them online.

Ronika Khanna is an accounting and finance professional who helps small businesses achieve their financial goals. She is the author of several books for small businesses and also provides financial consulting services.

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