GST/HST For Canadian Business: A Detailed Guide
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16 Nov 2023
How can Canadian businesses leverage the GST/HST system to their advantage?
According to a recent survey by the CFIB, 37% of small businesses said that the impact of GST/HST on their cash flow was a major burden.
CRA offers several resources and support programs to help businesses comply with the GST/HST. However, there are several reasons why businesses still find it difficult to deal with this regulation.
For example, the GST or HST has numerous different rules and regulations that businesses have to comply with. SMEs, that already have limited time and human resources, find it especially challenging. Often, they don’t have the resources or expertise to deal with complex tax issues.
Besides, the GST/HST system has different rules for multiple types of goods, services, and business setups. SMEs must also keep detailed records of their transactions to comply with GST/HST and Corporate Tax filing Canada regulations.
This blog post will provide you with a comprehensive guide for GST/HST, including its structure, methods of implementation, requirements for compliance, and wider economic effects. You will also find out how to comply with complex regulations and avoid heavy costly penalties.
The federal government and member provinces manage the Harmonised Sales Tax (HST) and Goods and Services Tax (GST), two essential components of Canada's tax system.
These taxes have a significant impact on consumers and companies nationwide and are one of the government's most important income streams.
The Goods and Services Tax (GST) is a value-added tax that is applied to most goods and services sold in Canada.
The Harmonized Sales Tax (HST) is a combined federal and provincial sales tax that is applied in five provinces:
How to register for GST/HST in Canada?
Businesses that are registered with Canada's Goods and Services Tax (GST) and Harmonised Sales Tax (HST) must submit a document known as a GST/HST return.
The total GST/HST collected on sales (output tax) and the total GST/HST paid on allowable costs (input tax) for a certain reporting period are both listed here.
Depending on the taxable supplies of the company, filings may be made monthly, quarterly, or yearly. Input tax credits are subtracted from output tax in the return to assist firms in determining their net tax due or refundable. To comply with tax laws and avoid fines, timely and accurate filing is essential, as is keeping accurate records.
Note Of Caution: GST/HST returns are based on the business's taxable supplies and input tax credits, so it is essential to have accurate records of these transactions. As per the Canadian tax system, the CRA may audit businesses at any time. Thus, keep detailed & accurate records for easier audit compliance.
Tip: A CPA in Surrey Canada can help you claim back GST in Canada from CRA for GST/HST tax.
Is GST HST considered income? No, GST/HST is not considered income for a business owner in Canada. GST/HST is a sales tax that is collected from customers and remitted to the government. It is not considered part of the business's revenue, as it is not money that the business has earned. For example, if a Surray SME sells a product for $100, including 13% HST, the business will collect $13 in HST from the customer, and remit this $13 to the government. Revenue here is the $100 that it received from the customer, minus the $13 in HST remitted to the government.
One can register for the CRA My Business Account online or over the phone. Under either method, CRA needs you to provide certain information, such as:
“Place of supply Rules” help figure out which jurisdiction (Canada or a province/territory) has the right to collect GST/HST on a supply. This is especially relevant when cross-border transactions are involved, and both the supplier & recipient reside in different jurisdictions.
The following are some “Pace of Supply Rules” to help your business be more GST/HST compliant:
For retail organizations, it is essential to understand how applying the GST/HST to consumers works. There are two strategies for applying GST/ HST: "Tax-In" and "Tax-Out"
When the displayed price of the product includes GST/HST chargeable, it is the "Tax-In" pricing. Thus, customers are aware of how much they have to pay exactly, including taxes and anything else.
In the "Tax-Out" pricing method, the tax amount is not shown with the price of the product. When the customer pays for the product/ service, they find an additional amount with their bill during checkout.
Pricing policies that are open and honest increase consumer satisfaction and trust, which has a favorable effect on consumer decisions, which is why the Tax-In strategy is best for pricing.
GST/HST is a significant component of Canada's tax system, impacting both consumers and businesses. It comprises the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST), which are applied to various goods and services. Understanding and complying with GST/HST regulations is crucial for businesses of all sizes.
At CJCPA, we understand the complexities of GST/HST compliance and can help your business stay on top of its obligations. We have a proven track record of helping small businesses in various industries, including real estate, restaurants, construction, logistics, and transportation. Contact us today to learn how we can help you with your GST/HST needs. Subscribe to our blog for more such accounting & financial insights!
What is HST and GST?
The federal government and member provinces manage the Harmonised Sales Tax (HST) and Goods and Services Tax (GST), two essential components of Canada's tax system.
These taxes have a significant impact on consumers and companies nationwide and are one of the government's most important income streams.
The Goods and Services Tax (GST) is a value-added tax that is applied to most goods and services sold in Canada.
The Harmonized Sales Tax (HST) is a combined federal and provincial sales tax that is applied in five provinces:
- New Brunswick
- Newfoundland and Labrador
- Nova Scotia
- Ontario
- Prince Edward Island
How to register for GST/HST in Canada?
- Gather Required Information: SIN or BN, legal business name and address, business type and activities, estimated annual revenue, and desired filing period.
- Choose Registration Method: Online through CRA My Business Account or by calling CRA Business InfoLine.
- Online registration: Create CRA My Business Account, go to Taxes & Benefits→ Register for GST/HST. Follow the on-screen instructions, and submit your application.
- Phone registration: Call CRA Business InfoLine at 1-800-959-8281, inform the representative that you want to register for GST/HST and provide the required details.
- Confirmation and start date: Get a confirmation letter or call from CRA, and note the GST/HST registration start date.
- Ongoing Obligations: Collect GST/HST from customers, issue GST/HST receipts, file GST/HST returns, and remit GST/HST collected to the CRA.
What Is a GST/HST Return?
Businesses that are registered with Canada's Goods and Services Tax (GST) and Harmonised Sales Tax (HST) must submit a document known as a GST/HST return.
The total GST/HST collected on sales (output tax) and the total GST/HST paid on allowable costs (input tax) for a certain reporting period are both listed here.
Depending on the taxable supplies of the company, filings may be made monthly, quarterly, or yearly. Input tax credits are subtracted from output tax in the return to assist firms in determining their net tax due or refundable. To comply with tax laws and avoid fines, timely and accurate filing is essential, as is keeping accurate records.
Note Of Caution: GST/HST returns are based on the business's taxable supplies and input tax credits, so it is essential to have accurate records of these transactions. As per the Canadian tax system, the CRA may audit businesses at any time. Thus, keep detailed & accurate records for easier audit compliance.
Tip: A CPA in Surrey Canada can help you claim back GST in Canada from CRA for GST/HST tax.
Is GST HST considered income? No, GST/HST is not considered income for a business owner in Canada. GST/HST is a sales tax that is collected from customers and remitted to the government. It is not considered part of the business's revenue, as it is not money that the business has earned. For example, if a Surray SME sells a product for $100, including 13% HST, the business will collect $13 in HST from the customer, and remit this $13 to the government. Revenue here is the $100 that it received from the customer, minus the $13 in HST remitted to the government.
Essential Considerations Before Registering For The GST/ HST
One can register for the CRA My Business Account online or over the phone. Under either method, CRA needs you to provide certain information, such as:
- Your social insurance number (SIN): You need to provide either your SIN or business number to register for the GST/HST. If you don't have a business number, the Canada Revenue Agency (CRA) will create one for you using your SIN.
- Registration start date: Your GST/HST registration start date is the date on which you become responsible for collecting and remitting GST/HST, which is up to 90 days before you apply for registration.
- Estimated annual revenue: With your estimated yearly income CRA will determine how frequently you must file GST or HST returns.
- Your desired filling period: Think carefully about your business cycles, cash flow, and complexity of operations first. Based on that, you can file the GST/HST returns quarterly, semi-annually, or annually.
What Are The Place Of Supply Rules In Canada?
“Place of supply Rules” help figure out which jurisdiction (Canada or a province/territory) has the right to collect GST/HST on a supply. This is especially relevant when cross-border transactions are involved, and both the supplier & recipient reside in different jurisdictions.
The following are some “Pace of Supply Rules” to help your business be more GST/HST compliant:
- The place of supply for goods is the place where the goods are located at the time of the supply.
- For services, it is the place where the recipient is getting your services.
- There are a few special rules applying to a particular set of goods and services. For instance, the place of supply for transportation services will be the place where the transportation starts.
GST/HST Strategies For Retailers: Tax-In And Tax-Out Pricing
For retail organizations, it is essential to understand how applying the GST/HST to consumers works. There are two strategies for applying GST/ HST: "Tax-In" and "Tax-Out"
When the displayed price of the product includes GST/HST chargeable, it is the "Tax-In" pricing. Thus, customers are aware of how much they have to pay exactly, including taxes and anything else.
In the "Tax-Out" pricing method, the tax amount is not shown with the price of the product. When the customer pays for the product/ service, they find an additional amount with their bill during checkout.
Pricing policies that are open and honest increase consumer satisfaction and trust, which has a favorable effect on consumer decisions, which is why the Tax-In strategy is best for pricing.
In Nutshell
GST/HST is a significant component of Canada's tax system, impacting both consumers and businesses. It comprises the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST), which are applied to various goods and services. Understanding and complying with GST/HST regulations is crucial for businesses of all sizes.
At CJCPA, we understand the complexities of GST/HST compliance and can help your business stay on top of its obligations. We have a proven track record of helping small businesses in various industries, including real estate, restaurants, construction, logistics, and transportation. Contact us today to learn how we can help you with your GST/HST needs. Subscribe to our blog for more such accounting & financial insights!
