Should you register for GST/HST and QST and What it Means to Be Zero Rated

One of the first tax questions you will be faced with as a small business owner or self employed worker is whether you need to register for GST/HST & QST.  The answer in most cases is that if you anticipate that your annual gross revenues (total sales) are going to exceed $30,000, then you should register for GST/HST and QST UNLESS you are considered to be providing a zero rated or tax exempt product or service, in which case you are not required to register.

A more detailed analysis of whether you are required to register for GST-QST

If you anticipate less than $30,000 in sales, should you register anyway?

Regardless of whether you are required to file for GST/HST and QST, business owners and self employed individuals should still consider registering.  The benefit of not registering (when your sales are less than $30,000) is that you can charge your customers and clients less than if you were to charge them the sales taxes.  The downside to not charging sales taxes is that it communicates to your clients that you are small enough that you do not have to charge sales taxes.  More importantly, by not registering for GST/HST and QST, you are not able to claim back the input tax credits i.e. the sales taxes that you paid on purchases.  In Canada, business owners are allowed to reclaim GST/HST and QST paid on expenses relating to their businesses.  This includes direct purchases relating to your products or services, eg. rent, office and computer expenses, cell phone bills and other expenses on which sales taxes are charged.  Since these are usually 100% recoverable, you actually end up reducing your expenses and increasing your cash flow.  And since clients/customers expect to pay sales taxes anyway, it israrely a deal breaker.  Additionally, if you are selling to businesses, it has no real impact on their bottom line as they are able to claim back their taxes as well.

What does it mean to be Zero-Rated?

As the name suggests products and services on which you are not required to charge GST/HST and QST are referred to as zero rated.  Included in this category are prescription drugs, groceries that are not for immediate consumption and exports outside of Canada (QST is not currently charged on goods sold and services provided outside of Quebec).  Small business and self employed people whose goods or services have been designated as zero rated, can still register for GST/HST and QST (and should) as they are allowed to claim the input tax credits i.e. sales taxes paid for supplies and expenses.  For example, if you provide services to clients internationally (eg the United States) , you are not required to charge GST/HST and QST in most cases, however you may still claim any GST/HST and QST paid on business expenses.  This can be a substantial benefit for businesses and freelancers. 

Full list of Revenue Canada zero rated supplies and services

Full list of Revenue Quebec zero rated supplies and services

Deciding whether to register for GST/HST and QST is a determination that should be made based both on the tax requirements as well as business considerations.  Keep in mind that registration comes with additional reporting and administrative requirements.  If you have a small side business or a hobby where you expect your sales figure to remain small and your taxable purchases to be minimal then perhaps registering is not necessary.  However, if you anticipate that your business is going to grow beyond the $30,000 threshold, then it might make more sense to register at the inception of your business so that you can benefit from the recovery of the sales taxes. 

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Ronika Khanna is a Montreal accountant who helps small businesses with their accounting, tax and financial goals.  To receive regular updates of articles pertaining to small business, accounting, tax and other topics of interest to business owners you can sign up here.  You can also follow her on Facebook or Twitter.