When should you charge GST/HST? Most likely, every Canadian business owner needs to know the answer to this question. You will probably need to charge sales tax sometimes, even if you don’t intend to pay it. In addition, you will need to charge GST/HST to customers.
So, if you’re attempting to determine when should you charge GST/HST in Canada, you’ve arrived at the right place. You can benefit from our bookkeeping services if you require assistance putting together your tax records. Moreover, Yogi & Associates has all the knowledge you need to know about GST/HST taxes.
1. What is GST?
The GST tax is charged on most goods and services bought in Canada. Customers pay the GST, but businesses must report it to the Canada Revenue Agency. The harmonized or provincial sales tax rate affects how much GST is charged.
2. What is HST?
The harmonized sales tax (HST) is a consumption tax paid by local residents and businesses. It harmonizes/combines the federal goods and services tax and several provincial sales taxes. The HST is used in five Canadian provinces.
Quick Fact!
The GST/HST was initially implemented in 1954 in France. Since then, 140 nations have embraced it in one way or another. Canada, Vietnam, Australia, Singapore, the United Kingdom, Spain, Italy, Nigeria, Brazil, and India are a few nations with a GST/HST system.
Check another interesting article by Yogi & Associates: How to Get an HST Number in Canada? 2022 Easy Guide
3. When Should You Charge GST/HST?
You must charge HST to your customers if your business generates more than $30,000 in annual revenue. So, while choosing when to apply GST/HST, keep the following four scenarios in mind:
You immediately receive an HST number
You can easily register for an HST number when you launch your firm. And when you already know how much money you’ll bring in. Additionally, this rule only applies if you expect to surpass the $30,000 cap in the future. So, the government refunds some part of your GST/HST, paid for business expenses. Especially on start-up costs.
You earn $30,000 during 90 days
You can start as a small supplier. Then your company starts to generate sales. And in a particular quarter or three-month period, you make more than $30,000. So in this instance, you are no longer regarded as a small supplier on the day the sale completes above the $30,000 mark.
Simply put, you must charge HST on the purchase, which pushes you above the $30,000 threshold. Moreover, even if you haven’t registered yet, on any subsequent sales. However, starting on the day of that sale, you will have 29 days to apply for a GST/HST.
You gradually earn more than $30,000 per year
In this scenario, you want to stay a small supplier. But your company is expanding and bringing in more than $30,000 over four consecutive quarters. So, you will become a minor supplier for the following month and those four calendar quarters. Hence, the first sale and all later transactions should include GST after the extra month. As a result, beginning on the first day of the second month, you will have 29 days to register.
“As a nation, taxing ourselves into prosperity is like a man standing in a bucket and trying to lift himself up by the handle.” – Winston Churchill.
You earn $30,000 in just two quarters
In this case, you intend to stay a small supplier. But your company generates more than $30,000 in revenue after two consecutive calendar quarters. After exceeding the $30,000 limit, you will be considered a small supplier for one month. So, after an additional month, you must add GST/HST to all sales. Starting on the first day of the second month, you will also have 29 days to apply for GST.
Note!
If you are selling to clients who live in another Canadian province, it will help if you use their tax rate on invoices rather than your own.
4. Who pays the GST/HST Tax?
Except for zero-rated supplies, almost all buyers of taxable supplies must pay GST/HST. However, some individuals and organizations don’t always pay GST/HST on their transactions. This includes Indians and some provincial and territorial governments.
5. What are the Exceptions for Charging GST/HST in Canada?
In Canada, there are some exceptions for charging and collecting HST in your business. So, you need to know about them. The two main exceptions are as follows:
Zero-rated supplies
You don’t have to charge GST if you’re selling zero-rated items in Mississauga. Such as exports, medical supplies, or basic groceries.
Exempt Supplies
GST/HST will not be applied on tax-exempt supplies. For example, health, medical, dental, daycare, and financial institution services, insurance plans.
Remember!
Your company will be considered a small supplier if your combined taxable revenues before expenses from your enterprises amount to $30,000 or less.
If you are a small supplier
Being a small supplier in Canada is based on your yearly income. The Canada Revenue Agency states that your company will be considered a small supplier if your combined taxable revenues before expenses from your enterprises amount to $30,000 or less. Or, you spent less than $30,000 in any of the previous four consecutive calendar quarters. GST/HST is not required to be included in this situation.
6. How does Place of Supply Impact GST/HST Rates?
The place of supply will determine the tax rate applied. Because you conduct your sell, lease, or other supply at a certain place. The GST/HST rate on a zero-rated supply is 0% across Canada. For instance, all provinces and territories have a 0% GST/HST rate for basic groceries. The province or territory determines the rate for other taxable supplies. The rates at this time are:
-
GST of 5% is applicable in different provinces of Canada. Including Alberta, British Columbia, Manitoba, the Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon.
-
15% (HST) is paid in five provinces. For instance, New Brunswick, Newfoundland and Labrador, Ontario, Nova Scotia, and Prince Edward Island;
-
13% (HST) in Ontario
7. Do You Need Help With Your Books?
Maintaining your books and tracking your GST/HST taxes on a daily, monthly, and annual basis will help you improve your firm’s performance. Yogi & Associates can assist if you’re experiencing trouble controlling your bookkeeping procedures.
Because at Yogi & Associates, we offer effective bookkeeping services to small business owners in Mississauga, Brampton, and surrounding areas. So contact us today to learn more about our services.
