Danielle Kubes is a trained journalist and investor who has written about personal finance for the past six years. Her writing has been published in The Globe and Mail, National Post, MoneySense, Vice and RateHub.ca. Danielle writes about investing and personal finance for Wealthsimple. She has a Bachelor of Humanities from Carleton University and a Master of Journalism from Ryerson University.
The Canadian government insists certain businesses collect sales tax on its behalf. When you register for the Goods and Service Tax or Harmonized Sales Tax (GST/HST) you get a number that registers and identifies your business, both to the CRA and also to other companies. The GST/HST number goes on your invoice so that other companies know that you’re required to collect tax and aren’t just charging an extra 13% for the fun of it. At least once a year you pass on what you’ve accumulated to the CRA.
How the GST number works
GST numbers may seem intimidating but the entire process is both logical and simple. Here’s the process broken down:
Contact the CRA and register for a number.
Collect the correct amount of GST/HST from clients.
Put aside the tax in a special bank account so you don’t touch it.
Spend GST/HST on business expenses.
Tell the CRA how much you collected and how much you spent.
Pay the CRA the difference.
Now all we need to do is go over the details, like who’s obligated to collect tax and on exactly which goods or services.
Who needs to get a GST/HST number
You must collect sales tax if your business made over $30,000 this year from Canadian sources and if you provide a good or service that the government deemed taxable. This applies to all businesses structures, including sole proprietors, partnerships, and corporations.
Best practice is to voluntarily get the number if there’s even a chance your small business will exceed $30,000 in annual sales.
If you genuinely don’t think you’ll make that much money this year, but then—surprise!—you do, then register for a number as soon as you exceed $30,000. It’s okay if it’s halfway through the year. You’re not responsible for HST on previous sales, but you must start charging HST on all subsequent sales, including the sale that put you over the $30,000 threshold.
You don’t need a GST/HST number if your business revenue from Canadian sources is less than $29,999 this year or you supply tax-free goods. No matter your revenue, you also don’t need a number if your clients are exclusively American or international since the CRA can’t legally collect tax from residents or businesses of other countries.
Exempt and zero-rated products
You’re not required to collect tax for either exempt or zero-rated goods and services. Accordingly, you don’t need to get a number if your business only deals with these kinds of products.
Yet, it may still be worthwhile to get a number if your business is selling zero-rated products because you can get a refund for HST you paid on business expenses (see input tax credits below).
But it’s best not to bother getting an HST number if you’re selling exempt products since they’re not eligible for refundable credits. To remember which is which just think to yourself “EEE or “Exempt is Exempt from Everything.”
Here’s a few examples of exempt businesses:
Private career colleges
And a few examples of zero-rated goods:
Feminine hygiene products
Raw agricultural products like wool and grain
How much GST should I charge?
The rate you charge depends on the province in which you made your sale—not the province in which you live. Say a graphic designer in Ontario who makes a logo for a marketing firm in Alberta will only charge them 5% GST. Similarly, a graphic designer in Ontario who does the layout for a magazine in New York is not required to charge any sales tax. (You’re still required to report all business income on your tax return, you just don’t have to collect duty on it). It gets trickier when you’re shipping product, so ask a qualified tax professional about your particular circumstance.
5% GST in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
13% HST in Ontario
15% HST in New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island
What’s an input tax credit and how do I get a GST refund?
One of the only benefits to registering for a GST/HST number is that the CRA reimburses HST on business expenses.
This is referred to as input tax credits (ITC), as in… you “input,” literally write in, what you expect to be “credited,” or given back.
On the same form you report HST collected there’s space for to enter the total HST you spent in the course of doing business. (The expenses must be legitimate of course.)
Total collected minus total spent is your net GST/HST. If it’s negative, you get a refund. (This can easily happen if you’re in the business of selling zero-rated goods, or you had a bad year and spent more than you made)
How to confirm a GST/HST number
The CRA is reportedly cracking down on ITCs so it’s important to make sure your documentation is aboveboard before submitting. Obviously, or so it would seem, you can only get an ITC from businesses that are permitted to charge HST.
Receipts from retail stores are almost never a problem—if you look closely you’ll see that they do list their HST number at the bottom, along with the date, and good purchased.
The trouble is, some smaller companies either mistakenly charge HST, lie about their number so they can get extra cash, or give incomplete invoices.
Take the extra effort to check over each invoice from a new vendor or supplier. You don’t want to have the CRA breathing down your neck because they caught you claiming an ITC from an unauthorized source…
You’ll want to check both that the number is authorized and the invoice is documented correctly.
A vendor invoice must have their business name spelt correctly, a description of the good/service provided, service total, HST total, and the HST number. You can easily confirm an HST account online: Just type in the number provided, the company name, and the transaction date.
You don’t need to pay the HST you collect if you make under $30,000. Once you have an HST number you must collect HST and pay the CRA, regardless of your business revenue. The HST is never yours to keep.
You made less than $30,000 so can stop collecting HST. No. Once you have a number you must collect HST, despite your income. If you plan to scale down your business and are confident you will not reach the income threshold you can cancel your number next year.
You can claim HST back for personal expenses. You can only get HST back on expenses you incurred while operating your business, for which you must have a receipt. It’s the same list of expenses you can deduct from your income tax return.
You need the cash-flow and it’s not a big deal to hang on to HST funds. HST money isn’t yours—you’re just keeping it company until you can hand it over to the rightful owners, the government. It’s tempting, and challenging, to spend the money because it’s right there, staring you in the face, and you have employees and rent to pay. But you must be disciplined. Get professional advice to manage your cash-flow issues or risk getting in trouble with the CRA.
How to get a GST/HST number
It’s easy to get a GST/HST number—remember, you’re filling the government coffers here so the bureaucracy is fairly straightforward.
All you need to do is call the CRA business hotline and ask for one. You can also register online, or get one by mail or fax, depending on your degree of Ludditism.
Have the following information handy:
Ownership type: individual, partnership, trust or corporation
Operation type: sole proprietor, foster parent, hospital, university
Description of business activity and goods/services you provide
Total annual revenue from taxable supplies in Canada
Total annual global revenue from all supplies
Fiscal year-end (this is almost always the calendar year)
Desired reporting period—annually is almost always easier, unless you’re afraid you’ll spend the tax if it’s burning a hole in your account if you don’t pay it immediately, in which case quarterly is best
When you register for GST you’ll get a business number at the same time. You’ll be broadcasting to the world that you’re a professional, with the sales to prove it.
The CRA will send you a letter in the mail with your number, or, if you’re signed up for MyCRA online account, they’ll post it there. Simply add it to invoices and start charging.