GST/HST Registration for Small Businesses in Canada: When Required

The core question this article addresses is: When is a small business in Canada required to register for GST/HST? The answer, in short, depends primarily on your business's revenue and the type of goods or services you provide. We will delve into the specifics of these requirements, providing clear examples and explanations to help you determine your obligations.

Understanding GST/HST

Before diving into registration requirements, it's essential to understand what GST and HST are. The Goods and Services Tax (GST) is a 5% federal tax applied to most goods and services sold in Canada.

The Harmonized Sales Tax (HST) combines the federal GST with provincial sales taxes (PST) into a single, blended tax.

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HST is currently used in New Brunswick, Newfoundland and Labrador, Nova Scotia, Ontario, and Prince Edward Island. The HST rates are 15% in the maritime provinces and 13% in Ontario. Provinces not using HST only collect the 5% GST.

The Small Supplier Threshold: The Key Determining Factor

The primary factor determining whether you need to register for GST/HST is the "small supplier" threshold. The Canada Revenue Agency (CRA) defines a small supplier as a business whose total taxable supplies (worldwide, including those of associated businesses) do not exceed $30,000 in a single calendar quarter or over four consecutive calendar quarters.

It is critical to understand what constitutes "taxable supplies." Taxable supplies include most goods and services, including zero-rated supplies. Zero-rated supplies are technically taxable but at a rate of 0%. Examples of zero-rated supplies include basic groceries, prescription drugs, and some exports.

However, exempt supplies are not included in the calculation of the small supplier threshold. Exempt supplies include things like childcare services, music lessons, and most financial services. If your business only provides exempt supplies, you cannot register for GST/HST.

When Registration is Mandatory

There are two primary scenarios where GST/HST registration becomes mandatory:

Exceeding the Threshold in a Single Calendar Quarter

If your business's total taxable supplies exceed $30,000 in a single calendar quarter (January-March, April-June, July-September, or October-December), you are immediately no longer considered a small supplier. You must register for GST/HST, and your effective date of registration is no later than the day of the supply that made you exceed the $30,000 threshold. Importantly, you must start charging GST/HST on that specific sale that pushed you over the limit.

For Example: If you cross that 30,000$ threshold in taxable supplies between July 1st and September 30th, that very same supply will have to be charged with GST/HST.

Exceeding the Threshold Over Four Consecutive Calendar Quarters

If your total taxable supplies exceed $30,000 over the previous four (or fewer) consecutive calendar quarters, but not in a single quarter, you cease to be a small supplier at the end of the month following the quarter in which you exceeded the $30,000. Your effective date of registration is no later than the beginning of the month after you are no longer a small supplier. You must start charging GST/HST on your taxable supplies from your effective date of registration.

For example, if your taxable sales were as follows:

• Q1 (Jan-Mar): $7,000
• Q2 (Apr-Jun): $8,000
• Q3 (Jul-Sep): $9,000
• Q4 (Oct-Dec): $7,000

Total for the four quarters: $31,000

You exceeded the threshold in Q4. You are no longer a small supplier at the end of January (the month following the quarter you exceeded the threshold), you are required to register no later than February 1st, and start collecting taxes as of that date.

Calculating Total Taxable Supplies

When calculating your total taxable supplies, remember to include the following:

• Revenues (before expenses) from your worldwide taxable supplies.
• Revenues from the taxable supplies of any businesses associated with yours (if they were associated at the beginning of the particular calendar quarter).

However, do not include:

• Revenues from supplies of financial services.
• Sales of capital property.
• Goodwill from the sale of a business.

Special Cases and Exceptions

Taxi Operators and Commercial Ride-Sharing Drivers

Regardless of their revenue, taxi operators and commercial ride-sharing drivers must register for GST/HST, even if they are small suppliers. This is a specific exception to the general rule.

Non-Residents

Non-residents carrying on business in Canada may need to register for GST/HST. If a non-resident makes taxable supplies in Canada, they generally follow the same rules as Canadian businesses. However, there are specific rules and voluntary registration options for non-residents. If a business is operating in Quebec, separate registration with Revenue Québec is necessary.

Charities and Public Institutions

Charities and Public Institutions have specific guidelines. It's recommended to review them in the CRA's official website.

Voluntary Registration

Even if you are a small supplier and not required to register, you may choose to register voluntarily. This can be beneficial in certain situations. The main advantage of voluntary GST/HST registration is the ability to claim Input Tax Credits (ITCs).

ITCs allow you to recover the GST/HST you paid on business purchases and expenses related to your commercial activities. If you anticipate significant expenses, particularly in the early stages of your business, the ability to claim ITCs can provide a valuable cash flow benefit.

How to Register

The easiest way to register for GST/HST is online through the Canada Revenue Agency's (CRA) Business Registration Online (BRO) service. Individuals with a SIN that starts with the number 9 can also use this to register and instantly obtain a business number and GST/HST account.

You can also register by phone or by mail. If your business is located in Quebec, you must register with Revenu Québec instead of the CRA for GST/HST.

Collecting GST/HST from Customers

Once registered, you must collect GST/HST on all taxable supplies. The rate you charge depends on the province or territory where the supply is made (the "place of supply").

If you are selling to customers in different provinces, you will need to charge the applicable GST or HST rate for their location.

For sales outside of Canada, GST/HST generally does not apply to services provided outside of Canada. However, purchases made by international customers in Canada may be subject to these taxes, nonetheless they could be entitled to a rebate.

When charging GST/HST, make sure that your invoices, receipts, or contract clearly states:

• Your Business Number.
• The effective date.
• The amount of tax charged or a statement that the price includes tax.
• Information that identifies your business.

Filing GST/HST Returns and Remitting Taxes

After registering, you must file regular GST/HST returns, even if you have no business transactions or no net tax to remit. Your filing frequency (monthly, quarterly, or annually) will be determined by your reporting period, which is usually based on your revenue. You must remit (pay) the net tax owing on your return by the due date. Failure to file or remit on time can result in penalties and interest.

You can use the Quick Method to help you calculate your net tax. It's a simplified option available to eligible businesses. Some professions such as accountants aren't eligible, though.

Conclusion

Understanding GST/HST registration requirements is essential for all small businesses operating in Canada. The $30,000 small supplier threshold is the key factor, but specific rules apply to different business types and situations. By carefully reviewing your revenue, the nature of your supplies, and your location, you can determine whether you need to register. Voluntary registration may also be beneficial, particularly for claiming Input Tax Credits. Remember to consult the CRA website or a tax professional for the most up-to-date information and personalized advice.

Do you have any further questions about GST/HST registration or specific scenarios not covered in this article? It's always best to seek clarification to ensure you're fully compliant with Canadian tax laws.

If you want to know other articles similar to GST/HST Registration for Small Businesses in Canada: When Requiredy ou can visit the category Tax Savings for Small Businesses and Freelancers.