Struggling with GST/HST compliance can feel overwhelming for many businesses. In Canada, businesses must follow strict rules after registering for GST/HST. This guide will break down the steps to help your business stay on track and avoid penalties.
Key Takeaways
- Businesses must register for GST/HST if taxable sales exceed $30,000 in four quarters or one calendar quarter.
- Keep records of income, expenses, and tax filings for at least six years to meet CRA rules.
- Late filings lead to penalties like 1% unpaid tax fines or $250 charges; avoid by filing on time.
- Use automated tools to track taxes, file returns, and stay updated on law changes easily.
- Non-residents selling goods or services in Canada must register and may need a $5,000 security deposit.
Understanding GST/HST in Canada
GST/HST is a tax on most goods and services in Canada. Businesses must understand how it works to meet their obligations.
Definition of GST/HST
GST means Goods and Services Tax. It applies to most goods and services sold in Canada. HST, or Harmonized Sales Tax, combines GST with provincial sales tax like Ontario.
Some items are not taxed under GST/HST. These include certain products and services without the tax requirement. Businesses cannot get credit for taxes paid on these exempt supplies.
Importance of GST/HST for Businesses
Charging and paying sales tax is needed for businesses in Canada. It follows tax laws and avoids penalties from the CRA. Businesses that meet income limits must register, so tracking income well is important.
Handling sales tax right keeps finances steady. The input/output system helps track bills and claim credits for taxes paid on expenses. This lowers costs while staying legal and organized.
Eligibility for GST/HST Registration
Some businesses must register for GST/HST based on their sales. Others can choose to register voluntarily for certain benefits.
Mandatory Registration Criteria
Businesses must register for GST/HST if their sales pass $30,000 over four straight quarters.
Non-residents selling taxable goods in Canada must also register. If they don’t have a permanent base in Canada, they need a security deposit of at least $5,000. Starting June 17, 2024, people with a SIN starting with 9 can sign up online.
Voluntary Registration Benefits
Voluntary registration lets you charge, collect, and pay sales tax on taxable sales. It also allows claiming credits for sales tax paid on business purchases and expenses. Non-residents can register if they do business in the U.S.
This builds trust and improves visibility with customers. Businesses can pick a registration date up to 30 days before the request. Registering early helps cash flow by recovering sales tax from costs.
Steps to Register for GST/HST
First, check if your business meets the registration criteria. Then, gather necessary details to complete the online process.
Determine Eligibility
If your sales go over $30,000 in a year, you must register for GST/HST unless you are a small supplier. Non-residents selling taxable goods in Canada also need to register unless they count as small suppliers.
Taxi and ride-share drivers must register and charge GST/HST on rides. Charities can use gross revenue of $250,000 or taxable supplies of $50,000 to decide if they are small suppliers.
Businesses that offer exempt supplies cannot sign up for GST/HST accounts.
Gather Required Information
Gather key details like your company name, physical address, and expected income. Include info about taxable income if it goes over $30,000 in one calendar quarter.
Get your Employer Identification Number (EIN) through the CRA application. This number is needed to set up a sales tax account. Have all documents ready before applying online, by mail, or phone.
Obtain a Business Number
You need a Business Number (BN) to open your GST/HST account. Get one through the CRA Business Registration Online service.
This step is for businesses with taxable sales over $30,000 or those signing up by choice to grow. Once you get a BN, use it to register for HST/GST online or other ways. The CRA will send a confirmation of your HST/GST number after you finish.
Complete the Registration Process
Register for GST/HST online or with a paper form through the CRA. Give your business number, yearly income, and start date to finish.
After Registration: Ensuring Compliance
Set up your GST/HST account correctly, and stay on top of your duties—read more to ensure compliance.
Setting Up Your GST/HST Account
Get a Business Number (BN) first. Then, open your GST/HST account using the Business Registration Online (BRO) service. If you’re not a resident, follow Guide RC4027 for special steps.
Share details like your start date, fiscal year, total revenue, and personal or business info during setup.
You’ll get confirmation by email or mail based on how you registered. Once active, start charging and collecting GST/HST right away. Filing returns and paying taxes will be part of staying compliant.
Understanding Your Responsibilities
Follow CRA rules once registered for sales tax. Charge and collect tax on taxable sales and give receipts showing the tax amount. Track all sales, taxes collected, and business purchases for proper records.
Claim credits for sales tax paid on business expenses. File returns on time to avoid penalties or fines. Keep records for six years in case of audits or reviews by the IRS.
Stay on track with filing deadlines to avoid penalties—discover how to simplify the process.
Frequency of Filing
Reporting times depend on last year’s income from taxable sales. Businesses with higher income often file every month. Others might qualify to file every quarter or year.
Monthly and quarterly filers must send returns one month after the period ends. Yearly filers have up to three months after their fiscal year-end. Even if there are no sales, a GST/HST return is still needed by the due date on Form GST34-2.
Online Filing Procedures
GST/HST NETFILE lets businesses file taxes online. First-time users should look at “Topics for GST/HST NETFILE” for easy steps.
To file a zero return, choose “I am filing a nil return” and put $0.00 in all boxes. Sign up for email updates with the IRS through My Business Account to get info on submissions or changes.
Deadlines and Penalties
Filing GST/HST returns late leads to fines. There is a 1% charge on the unpaid amount, plus 0.25% for each month it is late (up to 12 months). Missing a filing may cost $250. Fraud can lead to higher penalties—either $250 or 25% of the tax owed, whichever is more.
Not filing electronically starts with a $100 fine for the first missed return and goes up to $250 for later ones. Late payments also have interest charges, including arrears and installment interest.
Maintaining Accurate Records
Keep all your business records organized and updated. This helps ensure smooth GST/HST reporting and avoids errors.
Importance of Record Keeping
Keeping accurate records ensures GST/HST compliance. It helps manage data, find documents, and meet rules. Without good records, businesses may face fines or legal trouble.
Good records help with audits and lower risks. They support decisions and prevent mistakes. The CRA requires keeping these records for six years after filing taxes. Proper tracking improves tax handling and avoids problems.
Types of Records to Maintain
Income records track all money earned, like sales and service fees. Expense records include costs such as supplies, rent, and ads. Keep logs of mileage for business use if you use a vehicle.
Property records should show ownership details or improvements.
Businesses registered for GST/HST must save claims, rebates, refunds, and payroll files. Corporations and charities follow special rules for storing financial data. Both paper and electronic formats are okay—follow the rules for each to stay compliant.
Duration for Keeping Records
Keep records for at least six years after the last tax year they cover. If a business closes, keep records for two more years after it ends.
Records should stay in the Canada unless allowed to move by the CRA. Get written permission before destroying them early. Do not throw away records if there’s a dispute or appeal—it breaks rules and may lead to fines.
Utilizing Technology for Compliance
Technology makes tax compliance easier. Use tools to track and manage GST/HST tasks quickly.
Automated Tracking Systems
Automated tracking systems make sales tax compliance simple. They calculate taxes on invoices and sales automatically, lowering errors. Businesses can track collected and owed taxes quickly and easily.
These systems also let you file tax returns directly, saving time.
Digital recordkeeping helps during CRA audits by providing needed documents fast. Proper tracking ensures businesses get the most out of qualifying expense deductions. Automated tools keep businesses updated on changes in tax laws, making it easy to stay compliant.
Handling Audits and Assessments
Audits can happen anytime, so stay prepared with accurate records. Learn how to handle CRA assessments effectively to avoid penalties.
Preparing for a GST/HST Audit
The CRA sends notices to begin audits. These explain the focus and needed documents. Keep records ready, like sales slips, bills, and tax forms. Sort everything by date for easy use.
Audits often look at errors or odd claims like deductions. Claims must match purchases in your files. Get help from tax experts to avoid mistakes and manage reviews well.
Responding to CRA Assessments
CRA assessments need quick action. Read the notice to see why it was sent. Look for mistakes or missing details in your tax files. Collect papers like receipts, invoices, and records to back up your case.
If you don’t agree with the assessment, send an appeal to the CRA within 90 days of getting it. Clearly explain why it’s wrong and add all proof you have. Keep copies of everything you send for future uses.
Conclusion
Staying compliant with GST/HST rules is key for your business. Follow the steps, stay on top of filing, and keep clear records. Hadri Law can help you manage this smoothly. Keep compliance simple and stress-free! Book a free consultation or call us at (437) 974-2374 Email: contact@hadrilaw.com.