GST Considerations For New Business Owners

The Goods and Services Tax or GST is a consumption tax that is charged on most goods and services sold within Canada, regardless of where your business is located.  Subject to certain exceptions, all businesses are required to charge GST , currently at 5%, plus applicable provincial sales taxes.  A business effectively acts as an agent for Revenue Canada by collecting the taxes and remitting them on a periodic basis.  Businesses are also permitted to claim the taxes paid on expenses incurred that relate to their business activities.  These are referred to as Input Tax Credits.

Does Your Business Need to Register?

Prior to engaging in any kind of commercial activity in Canada, all business owners need to determine how the GST and relevant provincial taxes apply to them. Essentially, all businesses that sell goods and services in Canada, for profit, are required to charge GST, except in the following circumstances:

  • Estimated sales for the business for 4 consecutive calendar quarters is expected to be less than $30,000.  Revenue Canada views these businesses as small suppliers and they are therefore exempt.
  • The business activity is GST exempt.  Exempt goods and services includes residential land and property, child care services, most health and medical services etc.  A comprehensive list can be found here 

Although a small supplier, i.e. a business with annual sales less than $30,000 is not required to file for GST, in some cases it is beneficial to do so.  Since a business can only claim Input Tax Credits (GST paid on expenses) if they are registered, many businesses, particularly in the start up phase where expenses exceed sales, may find that they are able to recover a significant amount of taxes.  This has to be balanced against the potential competitive advantage achieved from not charging the GST, as well as the additional administrative costs (hassle) from having to file returns.

How to Register (Except Quebec):

Prior to registering, you should ensure that they have all the necessary information including the name, location, organizational structure  and fiscal year end of your business.

Per the CRA Website, you can register in the following ways:

How to Register in Quebec:

Both the GST/HST and QST are administered by Revenue Quebec.  You must only fill out the relevant GST-QST section in form LM-1-V, which can be done at the time of registering your business or any time after, when you decide to register for GST-QST.

How Often Should You File Your GST/QST:

Revenue Canada allows the GST returns to be filed monthly, quarterly or annually, depending on your annual sales.  If sales are less  than $1.5 Million you can choose to file annually or more frequently.  Businesses with sales exceeding $6 million MUST file monthly.

Since sales taxes can accumulate leading to a significant liability, it might make sense to choose a more frequent filing period, if you feel like you might be lacking the discipline to segment the funds.  Additionally a more frequent filing period can be advantageous if you expect to have more expenses than sales, since your business will be entitled to a refund. 

An annual filing period is convenient if you only do your bookkeeping sporadically, since interest and penalties are charged on balances owing for late filings.  Another benefit of an annual reporting period is that you can invest the GST collected in an interest bearing account until due.

Regardless of which filing frequency is selected, it is important to ensure that you maintain complete and accurate accounting records and you choose an accounting software that is able to calculate and track GST (thereby allowing for easy and efficient handling of the inevitable requests for information and tax assessment).  Ideally the software will also generate sales tax reports that can be easily transcribed.  Although returns can currently be filed manually or online, it is generally more expedient to file them online.

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Please do not hesitate to contact Ronika Khanna, a Montreal Accountant to help you with your sales tax registration and other accounting and tax needs.  You can also sign up to receive articles pertaining to small business, accounting, tax and other occasional non business topics of interest.  You can also follow her on Facebook or Twitter.