When should a small business charge GST?
Do you find that some accountants babble on in “legalese”? Well, here is some information for you on the GST (Goods and Services Tax) written in plain English, as well as a few tips!
What is the difference between GST and HST?
The GST and HST are essentially the same tax in the way that it is collected. A province either has GST + PST (Provincial Sales Tax) or just HST (Harmonized Sales Tax). Unless you live in Alberta, where the government decided that they didn’t need to charge a Provincial Sales Tax! In BC, the GST is charged at 5% of applicable goods and services, whereas, in a province such as Ontario, the HST is 13%. Your job as a business owner is to collect GST on behalf of the government BUT you do have the opportunity to keep some of it when you claim ITCs.
What is an ITC?
ITC stands for Input Tax Credit. We accountants love to abbreviate everything! This is the GST that you pay when you buy supplies for your business and every penny of it will return to your pocket when you file your GST return. The formula is:
GST Collected – GST Paid (ITCs) = GST Owing to CRA
You will get a GST refund if your GST Paid is higher than your GST Collected! This may happen if your business is operating at a loss this year or if you have made a large purchase such as a work truck.
Do I have to register for GST?
You do not have to register for GST if you are a small supplier with sales less than $30,000 annually. You are not allowed to register if your sales are GST exempt. You should register if your sales are zero-rated because you will be able to get a GST refund!
So, if your sales are higher than $30,000 annually you will have to register for GST and you will need to file annual or quarterly GST returns. You are also required to write your GST number (your 9-digit CRA Business Number with RT0001 at the end e.g. 12345 6789 RT0001) on all your invoices to customers.
What are zero-rated supplies?
Attention Hobby Farms – you will want to read this!! Zero-rated supplies are GST taxable at 0%, meaning that if your business falls in this category, you do not charge GST on your goods, but you can claim ITCs on the supplies you purchase and you get a GST Refund!
Some common goods and services taxable at 0% include:
- basic groceries such as milk, bread, and vegetables
- agricultural products such as grain and raw wool
- most farm livestock
- most fishery products such as fish for human consumption
As mentioned before, you are not required to register for GST, but it will be beneficial to you as you will be able to claim a GST refund! Your accountant would be happy to take care of the application for you.
What are GST exempt supplies?
If you provide only exempt goods and services, you cannot register for GST. This means that you do not charge the GST on your supplies of your goods and services, and you do not claim ITCs.
Some common exempt goods and services include:
- long-term residential accommodation (e.g. a basement suite in your home)
- most health, medical, and dental services
- child care services
- music lessons
- most goods and services provided by charities or non-profit organizations
What is the GST Place of Supply Rule?
This rule basically states that the GST/HST rate is determined by the location of the customer. For example, if I provide tax services to someone in Ontario, I will have to charge that person 13% HST, even though I am operating out of BC. If I were to install flooring in someone’s house in Washington, I would not charge that person GST at all.
What is the difference between GST and PST?
The main difference is that GST allows Input Tax Credits (ITCs) while PST does not. However, there are some special rules to note with PST so check out The Basics of PST! We hope you enjoyed this post and found it informative!
About the Author:
Alicia Loewen is a certified Advanced QuickBooks Online ProAdvisor and the owner of Coastal Tax and Accounting Services on Vancouver Island, BC. Coastal Tax is a modern accounting firm and offers all services remotely using online and paperless software to make bookkeeping and tax preparation as painless as possible. Contact Alicia to set up a free consultation.
Please check out the following CRA links for more information:
“Register for a GST/HST account” http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/rgstrng/menu-eng.html
“Basic Information on the GST/HST” http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/menu-eng.html#wht_sppls
“List of GST/HST zero-rated supplies” http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/txbl/zrrtd-eng.html
“List of GST/HST exempt supplies” http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/txbl/xmptgds-eng.html