“Registering your business for the goods and services tax or a provincial harmonized sales tax depends mostly on the sales volume of your business,” says accountant and tax preparer Dan O’Neil of London, Ontario. “Conventional businesses deemed small suppliers aren’t required to register for GST/HST collection, though there may be benefits for some small suppliers to do so.” Charities and public institutions have slightly different registration requirements.
The goods and services tax applies to the sale or delivery of most products and services of a commercial nature so the chances are, whatever business you’re in, the GST will be charged by companies with adequate sales volume. The GST is collected across the country and submitted to the federal government. The harmonized sales tax generally covers the same things as the GST, but it is a provincial-level tax; only five provinces participate with the federal government to collect sales tax in conjunction with the federal GST. Since the GST portion applies across the country, businesses in every province must register to collect the GST once sales reach the appropriate size.
Small suppliers in general business
Small suppliers, for GST/HST purposes, have sales under $30,000 in the current calendar quarter, as well as the total of the last four calendar quarters. When you achieve sales over $30,000 in a single quarter, you cease to be a small supplier. When your cumulative revenues exceed $30,000 within the previous 12 months, then you also lose small supplier status and must register to collect and pay GST/HST amounts. When you’re required to start collecting these amounts depends on how and when you cross the $30,000 threshold. Similarly, you are required to submit your registration application 30 days after the point when you lose your small supplier status.
Charities and public institutions
Charities and public institutions or service bodies that aren’t charities have similar qualifying conditions for GST/HST registration for small suppliers as well as a gross revenue test. Only one of these tests must be met to remain qualified as a small supplier. For this class of business, the sales target is $50,000, but otherwise is subject to the same current quarter and past four quarters pattern as general businesses. The gross revenue test looks at your charity’s fiscal years. You aren’t required to register in your first fiscal year. If your gross revenue from the first year is less than $250,000, you don’t have to register in your second year. If, in your third year, and years after that, if gross revenues for either or both of the previous two years are less than $250,000, your charity business is still considered a small provider.
Advantages of registering
GST and HST that you pay can be refunded if you are registered to collect the GST/HST. These are called input tax credits, and they originate with most expenses, costs of goods later sold or services you used in the process of conducting business. Charities have a special procedure under which 40 percent of the GST/HST collected is kept by the charity, but fewer input tax credits can be claimed. Small suppliers in general business or charities and public services can still register to collect the GST/HST to enable the claiming of input tax credits.
References & Resources
- Canada Revenue Agency: Basic Information on the GST/HST
- Canada Revenue Agency: Small Supplier Limit Calculation
- Dan O’Neil, CPA; London, Ontario
- Jack Hollingsworth/Photodisc/Getty Images