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A guide to GST/HST for small businesses in Canada

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Most small businesses don’t really know much about  GST/HST, how they need to file it, and how it works…Or how, when and why they need to register for it. We have gathered all the required information regarding GST/HST for small businesses to enlighten this topic and provide clarity for small businesses. Read below a guide to GST/HST for small businesses in Canada.

Let’s begin with the basics.

What is Canadian Sales Tax?

The Canadian sales tax is applied to the ultimate sale of a product or service. There are following types of sales taxes levied in Canada depending upon different regions of the country.

GST (Goods and Services Tax):

It is applied nationally on every province of the country and the federal government of Canada imposes it.

PST (Provincial Sales Tax):

This tax is imposed by the provincial government and it is applied in every province of Canada except Alberta.

HST (Harmonized Sales Tax):

It is the combination of GST and PST. In other words, it’s the sum of all the taxes you can expect to pay. HST is applied by Canada Revenue Agency (CRA) under similar legislation like the GST.

HST is found to be imposed in the provinces of New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario and Prince Edward Island. This means that these provinces do not apply GST and PST individually but only a combined HST is levied.

QST (Quebec Sales Tax):

This Sales tax is levied in the province of Quebec. All the merchants have to pay both the GST and QST on the sales. The Ministère Du Revenu Du Québec (MRQ) administers the GST and QST for the Canada Revenue Agency (CRA).

RST (Retail Sales Tax):

This the provincial sales tax applied in the province of Manitoba. All merchants are needed to pay GST and RST on sales made.

What are the sales tax rates in different provinces of Canada?

The rates are based on the region or province of the country, in which you are running the business. According to the regional laws, you are required to register for either GST or GST and PST combined that is HST.

If your business sells goods or services within the province then tax rates of your domiciled province will be applied.

On the contrary, if your business sells goods or services outside your domiciled province, then the tax rate applied would be of the customer’s domiciled province.

The same rule is for the customers possessing foreign domicile but resides in Canada, the tax rate would be of their domiciled region.

All the provinces have either levied PST or HST except for one province that’s Alberta. The GST imposed by the federal government is 5% and the HST rate is 13%. This means almost every good or service you buy in Ontario, there is the implementation of 13% HST.

There is no HST exempted and zero-rated supplies. If your revenue exceeds $30,000, then you are required to collect HST as well.

What is the breakdown of the Sales tax?

Now as we know that, when PST combine with GST, its called HST. This implies that if HST has been paid then there is no need to pay GST.

If you are doing business in your domiciled province and it levies HST then the sales tax collection rates would be as follows:

However, if you possess a domicile from non-HST-participating provinces, then you will have to collect 5% GST. Plus the following PST rates respective of your province.

In case, you are running a business in the province of Alberta. Or one of the three territories mentioned below. Then there will only 5% GST applied.

tax rates

What was the purpose of 5% GST?

The 5% GST on Canadian goods and services initiated on 1st Jan 1991. The main idea was to refine and smoothen the taxation system particularly on the exported goods and services. As the GST replaced the hidden 13.5% manufacturer’s Sales Tax, therefore it was able to streamline the whole process.

Some provinces agreed to merge the GST charge with their provincial sales taxes and imposed the combined HST. Sadly, not all the provinces opted for the merger and stuck to their existing provincial sales tax regimes.

As a result, the businesses have to register for both, GST and PST separately. The HST/PST rates vary from province to province. In addition to this, there is a list of products and services that are exempt from either GST or PST. Hence, the extra documentation and invoicing adding to the workload for the small businesses.

Registration of GST/HST for small businesses:

Before diving into the registration of GST/HST, get to know about some important rules. Check out the Canadian Government’s official page to gain an insight about ins and outs of GST/HST.

When to register for GST/HST?

It is mandatory in Canada to register and collect HST once your business turnover exceeds the limit of $30,000 in the last four quarters. However, mostly it is beneficial if you register GST/HST just after the launch of your business. This is because if you exceed $30,000 and do not collect HST, you will be paying tax dollars from your pocket!

Once you have registered the business, you will secure a business number (BN), that you will have to mention on every business invoice.

After registration, you can charge and collect an extra 13% of the total amount from your customers. Some part of the HST, you can keep no matter what method you choose. Therefore, it is sensible to register for GST/HST immediately after setting up your business.

Three ways to register for GST/HST are as follows:

  1. Online
  2. By telephone
  3. By mail or fax
What are the GST/HST filing deadlines?

Lets now discuss the due dates of filing GST/HST. According to the official website, the HST year-end is on December 31st and the payment schedule is quarterly. So you will have to file your tax returns within 3 months.

There is an option of changing the filing schedule from quarterly to annually. This will save you from the pressure of meeting deadlines four times a year. You will have to contend with just one deadline in a year. Moreover, your life will become less stressful with simplified bookkeeping.

How do you submit GST/HST?

There are two official methods of GST/HST.

1. Quick Method of HST.

2. The Regular Method.

When you have started to collect HST, you can now choose one of the above of the two methods for revenue submission.

The regular method should be applied when the profit exceeds $400,000 inclusive of HST. However, if the revenue is less than $400,000 then you can opt for the Quick Method.

Note that you will register on the regular method by default. If you wish to change it to Quick method then you must file a request to CRA.

The Regular Method:

This is a straight forward method where just simple subtraction of expenses from your collection funds happens. The remainder after subtraction is the amount you have to pay to the Government in the shape of GST/HST.

The Quick Method:

So the Quick Method basically involves multiplication of your first revenue of $30,000 by a fixed percentage (7.8%). Any amount above the limit of $30,000 (including HST) is multiplied by 8.8%. This method is comparatively simple and quick. It can be calculated without the need for juggling with heaps of books.

Hire An Expert:

Every small business owner should take some time out to study the process of GST/HST. Discuss the topic with your accountant.

For a small business owner, it is pretty much a solo performance where one person has to keep everything in check be it marketing, sales, accounts, or say every aspect of the business. It is very important to keep your financials in order so that your business flourishes smoothly. To stay on top of your business financials as well as keeping your mind free, consider hiring an expert.

 Centrosome Bookkeeping services is a bookkeeping firm that offers expert financial advice. We are based in Ottawa, Canada, and help small businesses with bookkeeping in Canada and the United States.

To learn more about the services we offer at Centrosome Inc. Please click here, or read what our clients are saying about us, read our about us page here. If you have any questions about how we can help you, contact us. 

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