The GST/HST is a value added tax introduced in Canada in 1991. If your business has an annual worldwide sale of more than $30,000, you must register for GST/HST. The requirement applies to all businesses, including sole proprietorships and partnerships. Registration is not mandatory until you reach the $30,000 threshold for you or your business, but it may be a good idea to sign up voluntarily.
The main benefit to register voluntarily is to ensure you recover GST/HST paid out (input tax credits) for business expenses, particularly when you have incurred large start-up costs or you have acquired significant assets to be used in your business.
The $30,000 threshold is based on revenue of all associations. Let’s look at a few examples of this. Say you own two separate businesses that both supply taxable goods and services, they will likely be considered one business for GST/HST threshold purposes. This includes sales whether taxable or zero-rated.
In addition, although foreign customers are exempt from the tax, GST/HST registration is based on global revenue. If you have grossed more than $30,000 in worldwide income you must charge GST on your Canadian income as soon as you exceed the threshold. You would not be liable if you have no Canadian revenue.
Once you have registered, you must keep track of all the GST/HST you collect and the GST/HST you pay. These figures have to be calculated and filed with CRA for each reporting period you set up when you register. This could be on a quarterly or annual basis.
When you fill out your GST/HST return, you have to note the amount your company has billed and the amount it has paid out.
If you collect more GST/HST than you paid, you remit the difference to CRA. If you pay more than you collect, you are eligible for a refund.
You may be able to recover GST/HST on personal assets contributed to the business by calculating an ITC (input tax credits) based on the market value of the assets at the time the business started.
If you are going to wind-up your business, you may be required to pay GST/HST on any inventory or capital assets you are changing back to personal use. The GST/HST would be based on the market value of these items at the time you ceased operations.
Note: Generally if a business sells zero-rated services or products, it is advantageous to register for HST as the business will always get a refund. Some provinces have harmonized their provincial sales tax with GST to create HST. HST applies to the same base of goods and services as GST, but at a higher rate, part of which goes to the federal government and the remainder to the province. If you are unsure about the requirements, consult your accountant or feel free to contact us.