Should New Business Owners Register for GST/HST?

Table of Contents

What is GST/HST?

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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Is Your Business Required to Register for GST/HST?

According to CRA:

You have to register for a GST/HST account if both situations apply:

You are not a small supplier

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)

Source

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine if they meet the criteria for registration for GST/HST.

Essentially, all businesses that sell goods and services in Canada are required to charge GST and HST, except in the following circumstances:

1. 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.

2. 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

3. The business activity is Zero rated for GST/HST purposes which most commonly refers to sales to foreign/international clients and customers.

Should You Register for GST/HST Even If Your Sales are Under $30,000 ?

Although a small supplier, i.e. a business with annual sales less than $30,000 is not required to file for GST/HST , 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 (and hassle) from having to file returns.

How to Register for GST/HST 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 for gST/QST 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 when you sign up online includes:

• Notice number of the most recent notice of assessment,

• Quebec Enterprise Number (NEQ) and

• CRA business number.

How Often Should You File Your GST/HST and QST

• Revenue Canada allows the GST/HST 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 , quarterly or monthly.  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. 

• A more frequent filing period can be advantageous if you expect to have more expenses than sales, since you can claim back the sales taxes paid on expenses also referred to as input tax credits.

• An annual filing period is convenient if you only do your bookkeeping sporadically, since interest and penalties are charged on GST/HST  balances owing for late filings. 

• Another benefit of an annual reporting period is that you can invest the GST/HST 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/HST for the previous year exceeds $3,000 in sales.

Final Comments

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 and HST (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. 

It should also be noted that, starting in 2024, GST/HST returns must be filed online/electronically. If you don’t, CRA might charge a penalty.

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