Are you unsure if you need to register for GST/HST? Businesses in Canada must follow specific tax rules based on their income and structure. This guide will explain when and how to register, whether you’re a sole proprietor or a corporation.
Key Takeaways
- Businesses must register for GST/HST if their total taxable sales are over $30,000 in one quarter or four straight quarters.
- Sole proprietors report income on personal tax returns and need to register when sales pass the $30,000 limit.
- Corporations must register if they make more than $30,000 in taxable sales annually.
- Registering for GST/HST shows professionalism and builds trust with clients.
- From 2024, all businesses in Canada will need to file GST/HST returns online to meet CRA rules and avoid penalties.
Understanding GST/HST
GST and HST are taxes added to most goods and services in Canada. They help fund public services through collected revenue.
Definition and Purpose of GST/HST
GST stands for Goods and Services Tax. It is a value-added tax charged in Canada on goods and services. HST, or Harmonized Sales Tax, combines GST with provincial sales taxes.
The purpose of GST/HST is to tax the use of goods and services. This tax helps raise money for both federal and local governments. Businesses collect this tax during sales and pay it later to the government.
Criteria for GST/HST Registration
You need to know if your business meets the registration rules. These depend on your revenue and the type of supplies you provide.
Mandatory Registration Threshold
Businesses must register for GST/HST if total revenue is over $30,000 in one calendar quarter or four straight quarters. This rule covers most businesses, with some exceptions.
Voluntary Registration Benefits
Small businesses making under $30,000 can choose to register for GST/HST. This helps them claim tax credits on business costs. It also builds trust with clients and adds credibility.
Choosing to register gives access to government contracts and funding. Non-residents working in Canada can benefit as well.
GST/HST Registration for Sole Proprietors
Sole proprietors must register for GST/HST if their sales exceed the set threshold. The process is simple and ensures compliance with tax rules.
When Sole Proprietors Must Register
Self-employed people must register for GST/HST if their yearly taxable sales go over $30,000. Taxable sales include most products and services sold in Canada.
Income or losses must be reported on a personal tax return. Registration is not needed if taxable sales stay under $30,000 per year. Taxes owed or credits claimed still need filing a personal tax return.
Steps to Register as a Sole Proprietor
Running a business as a sole proprietor means you need to register for sales tax. Follow these steps:
- Decide if you will use your own name or create a business name.
- Open a separate bank account if you have a registered business name.
- Apply for a sales tax number with the CRA.
- Fill out Form T2125 to report your business income and expenses for taxes.
- Check CRA guides online for detailed registration help, if needed.
GST/HST Registration for Corporations
Corporations must register for GST/HST if their taxable sales exceed the required threshold. Registration is also possible before reaching this limit for potential benefits.
When Corporations Must Register
A business must register for GST/HST if yearly taxable sales go over $30,000. This includes global earnings in one calendar quarter or over four straight quarters. Once registered, the business adds GST/HST to invoices and files regular tax returns.
Early registration is an option even before hitting the limit. It allows claiming input tax credits on eligible expenses. Registering follows tax laws and improves financial trustworthiness.
Steps to Register as a Corporation
Registering for GST/HST as a corporation is easy. Follow these steps to stay compliant:
- Get a CRA business number before applying for your GST/HST number.
- Go online to the Government of Canada website for tax registration.
- Provide all company details, including name and incorporation info.
- Apply for a new GST/HST number after incorporating, even if you had one as a sole proprietor.
Each step helps your corporation meet requirements smoothly and properly!
Advantages of Registering for GST/HST
You can claim back GST/HST paid on business expenses. It also adds professionalism to your business image.
Access to Input Tax Credits
Input Tax Credits (ITCs) help businesses get back taxes paid on business costs. These include things like legal fees, office supplies, and start-up purchases. New GST/HST registrants can also claim ITCs for inventory and property bought before signing up.
Enhanced Credibility with Clients
Registering for GST/HST shows professionalism. Clients see tax registration as a sign of trust and following rules. It helps bring in bigger clients who expect proper tax practices.
A registered business also looks credible in government contracts.
Even businesses below the revenue limit can benefit from registering. It boosts their image and builds client trust. This step makes deals easier and can lead to more customers over time.
How to Manage GST/HST Compliance
Stay on top of collecting and remitting GST/HST—this is crucial. Regularly track deadlines to avoid penalties.
Collecting the GST/HST
Collecting the GST/HST is essential for registered businesses. Follow these steps to ensure compliance:
- Charge GST at 5% or HST between 13%-15%, based on your province. Ensure you apply the correct rate for taxable supplies.
- Record all taxable sales accurately in your bookkeeping system. Clear and organized records help with tax reporting requirements.
- Inform clients of the tax applied on invoices or receipts. The amount must be displayed separately for transparency.
- Deposit collected taxes in a separate account, if possible. This avoids confusion with other income and ensures funds are set aside.
- File GST/HST returns as required by your reporting period—monthly, quarterly, or annually. Filing late can result in penalties from CRA.
- Pay collected taxes to CRA before deadlines, using online platforms or physical submissions if needed.
- Regularly review sales to ensure compliance with thresholds and exemptions. Adjust practices as your business grows or changes structure.
- Seek guidance from Hadri Law Professional Corporation when unsure about collections or compliance rules under CRA guidelines.
- Use resources provided by CRA for accurate information on filing returns and handling exempt or zero-rated supplies properly.
Filing GST/HST Returns
Filing sales tax returns is a must for businesses registered for GST/HST in Canada. The Canada Revenue Agency (CRA) has clear rules and deadlines.
- Businesses must file all sales tax returns.
- Missing electronic filing may result in penalties set by the CRA.
- Returns need to include net tax based on business activity and credits claimed.
- Deadlines matter; late filings can bring extra charges.
- Payments should match taxes collected and calculated from your records.
- Errors in filed returns can be corrected following the CRA’s amendment steps.
- Tax complaints should follow the official process for resolution.
Follow these tips to avoid problems with compliance and fees!
Paying Collected GST/HST
Paying collected sales tax is key for businesses to follow tax rules. These steps can help you avoid penalties:
- Calculate net tax by subtracting Input Tax Credits (ITCs) from the sales tax collected.
- File all returns online starting in 2024—this will be required for businesses.
- Use installment payments if your business owes a large amount over time.
- Pay any balance by the due date to avoid interest or fines from the IRS.
- Claim rebates, when allowed, on certain expenses to lower what you owe.
- Look for temporary relief periods like December 14, 2024, to February 15, 2025, that may reduce obligations briefly.
- Learn and follow all regulations about filing and paying taxes on time and correctly.
Special Considerations
Some business activities are exempt from GST/HST. Understand how your business structure affects tax obligations—this can save time and money.
Dealing with Exempt Supplies
Businesses offering only exempt supplies usually cannot register for GST/HST. Exempt supplies include services like health care, child care, and some education programs.
Small suppliers making less than $30,000 in revenue over four quarters do not need to register. Charities follow a $250,000 gross revenue test or a $50,000 taxable supplies test. Non-residents might need to register depending on sales activities.
Impact of GST/HST on Different Business Structures
GST/HST affects businesses in different ways. Sole proprietors must track income closely to avoid going over $30,000 in taxable sales. If they go past this limit in one quarter, they must register right away.
Corporations follow similar rules but often deal with more complex transactions and higher revenues, which can affect tax collection and compliance.
Non-residents making taxable sales in Canada need to register for GST/HST and may need a security deposit.
Conclusion
Choosing to register for GST/HST depends on your business type and income. Sole proprietors and corporations both have rules to follow. Registering can bring benefits like input tax credits and building trust with clients. Get in touch with Hadri Law to guide you through the process. Book a free consultation or call us (437) 974-2374.