GST and QST 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:

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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

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Tax Filings for a Typical Canadian Small Business

When starting a business, it can be confusing and a little overwhelming to keep on top of the different types of tax filings that need to be submitted and the timing on each one.  Documents received from the government are not always clear as to what needs to be done, particularly if you are not familiar with what they are asking for.  It can be easy to put them aside to deal with them later, however this will usually result in more letters and if left for long enough, arbitrary assessments and interest and penalties. It is therefore prudent for registered and incorporated businesses to keep on top of their tax filing.
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5 Reasons to Change Your GST/HST/QST Reporting Period and How to Do It

When starting a business  the selection of the GST/HST or QST reporting period i.e. how often to file your sales tax returns is often based on new business considerations.  Either you are over enthusiastic and you want to file frequently or you don’t want to be bothered with the administrative hassle and select the annual reporting option.   As time passes and your business evolves, you might realize that the option that you initially selected may no longer be the most optimal.  There are several reasons that you might want change your reporting period:
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Revenue Canada Interest, Penalties and Payment Arrangements for Income Tax and GST/HST Returns

Whether you are an individual or a business in Canada, taxes are an inescapable part of your existence.  All sources of income need to be calculated, tax returns needs to be filed and taxes owing must be paid.  This is somewhat facilitated if you are an employee as your employer tends to take care of the majority of remittances.  Self-employed individuals, sole proprietorships, partnerships and corporations on the other hand, must account for their income and expenses , determine taxes payable  and remit the appropriate amounts.  Additionally, businesses are also responsible for other filings including GST/HST and QST and payroll.  A lack of knowledge, imperfect accounting systems and the business of running a business sometimes interfere with the timeliness of filings.  The Canada Revenue Agency attempts to curb these tardy behaviours by imposing penalties and interest on late filings as follows:

Unincorporat

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Is the Quick Method of Reporting GST/HST & QST the Right Choice for your Small Business

If you are self employed or a small business with annual sales between $30,000 and $200,000, it might make sense to select the Quick Method of reporting your GST/HST and QST (note that if your sales are less than $30,000 you are not required to collect sales taxes).  While regular reporting of sales taxes requires that you calculate all amounts collected and paid on eligible expenses, the quick method requires the application of a single rate to your sales.  The key details of the Quick Method and its suitability for your business are discussed below:

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How to Update Quickbooks for the 2011 QST Rate Increase

Update:  As of January 1st, 2012 the Quebec Sales Tax (QST Rate) which had gone up from 7.5% to 8.5% on January 1, 2011 will now increase to 9.5%.  The effective sales tax in Quebec will go up from 13.925% to 14.975%.  Since QST is calculated on the net amount + GST, the effective rate is actually 14.975% (and not 14.5%) .  In other words the effective QST rate is 9.975%.  The instructions below are equally applicable, except the new QST rate to enter is 9.5%.

On January 1st, 2011, Revenue Quebec will be increasing the QST rate to 8.5% (yay!), bringing the effective rate of QST to 8.925% andtotal sales taxes (GST and QST) to 13.925% (since the QST is actually charged on the net price + GST.)  This will impact anyone who charges QST including small businesses and self employed individuals, and invoicing software and processes should be updated to reflect the change.   Suffice it to say that there are no major changes in the application of the rates.

For those of you using Quickbooks you will need to update the QST being charged on both sales and purchases.  The goal is to make a copy of the already existing QST on Sales and QST on purchases items, which will maintain the old rate.  Once this is done the existing "items" should be updated with the new rate.  This will automatically feed into and update the sales tax codes, so that you do not have to re-create them.  Keep in mind that this should be done on January 1st, 2011 or first day back after the holidays, so that transactions prior to 2011 are not affected.  The following are the steps required to make the change:

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