The Complete Guide on Collecting GST/HST for Self-Employed Canadians

Being self-employed can give you freedom and flexibility to run your own business. However, it’s important for entrepreneurs to understand how to file their taxes, since it’s a completely different ball game compared to being an employee. 

In this guide, we’ll explain the process of registering, collecting, and remitting GST/HST so you can file your taxes properly with the Canada Revenue Agency (CRA). You want to be sure to prevent any penalties or interest charges.

Here’s how to do that:

What is GST/HST?

First you need to understand GST/HST. For most businesses, when you offer goods and services, you are required to collect tax from your customers.

Below are the types of sales tax in Canada:

• Goods and services tax (GST), which is a 5% tax applied to most taxable items and services in all provinces and territories; this includes British Columbia, Alberta, Manitoba, Saskatchewan, Quebec, Northwest Territories, Nunavut, and Yukon.
• Harmonized sales tax (HST) is when the GST is collected together with the Provincial Sales Taxes (PST). New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island charge 14%, whereas Ontario charges 13%. (For additional information on the collection and remittance of PST, contact your provincial authority.)

So, if you’re buying a bag of pretzels for $1.00, with GST in Alberta, it will cost you $1.05. On the other hand, with HST in New Brunswick, it will cost you $1.15.

Does my small business need to collect GST/HST? 

Maybe not. Not all goods and services are subject to the GST/HST and not all businesses are required to charge, collect, and remit the tax. Essentially, it boils down to two factors: the type of supply you are selling and the amount of sales you have.

Types of supply

To figure out the GST/HST rate your business should charge, you’ll need to know which supplies are taxable and at what rate. The CRA categorizes goods and services into three groups:

• Taxable—GST/HST is charged, collected, and remitted. As a registrant, you may also claim credits, called input tax credits (ITCs), for GST/HST paid to produce the goods and/or services.
• Zero-rated—GST/HST is not charged, collected, or remitted. But as a registrant, you can claim ITCs for GST/HST paid to produce the goods/services.
  • For example, if your business sells medical devices, such as hearing aids, no GST/HST is collected from your customers because these supplies are zero-rated.
  • Another instance is if you are selling your services to businesses outside of Canada that are not registered. Those sales would be classified as zero-rated, as well.

• Exempt—GST/HST is not collected and you cannot claim ITCs for any GST/HST paid.
  • Examples of exempt services include child care fees and music lessons. 

Examples of each group type are available on the CRA’s web page,“Type of supply.”

Do I have to pay GST/HST if I make less than $30,000?

For most businesses, the requirement to register for the GST/HST applies when you’re no longer a “small supplier.” This happens when your sales (before expenses) is more than:

• $30,000 in a single calendar quarter (three consecutive months), or
• $30,000 within the previous four consecutive calendar quarters (not a calendar year). 
  • For example, if your business brought in more than $30,000 in sales between July 1 and June 30 of the following year, you’ve passed the threshold as a small supplier even though your sales were less than $30,000 in each calendar year.

If you’ve met one of the above criteria, this means you’re required to register for GST/HST right away and begin to charge, collect, and remit the tax. 

Who should register for a GST/HST number?

The majority of businesses will follow the $30,000 rule mentioned above and register for a GST/HST number. To find out the requirements for charities and public organizations, public service bodies, and non-residents, check the CRA website.

One thing to note: If you’re a self-employed taxi driver or commercial ride-sharing driver, you’re still required to register for a GST/HST number, even if you’re a small supplier. 

Should I do voluntary registration for GST/HST?

In some situations, voluntarily registering for the GST/HST (before hitting the $30,000 threshold) makes sense, such as:

• If you want to get a head start on proper recordkeeping. 
• If you predict your business will exceed the small supplier threshold fairly quickly—it’s $30,000 in sales, not profit.
• If you produce or sell zero-rated supplies. Although it’s not required to charge GST/HST on sales, ITCs can be claimed. 
• If you have to spend a lot of money upfront to get your business running. This is because the ITCs on the first few returns would provide a refund of GST/HST paid; that extra cash could help the business grow a little faster.

4 steps to collecting and filing a GST/HST return

Now we’ll take you through the four steps of applying for a GST/HST number, collecting taxes, filing a GST/HST return, and remitting your taxes. 

Step 1: Apply for a GST/HST number

Once you’ve determined you are required (or voluntarily choose) to register for the GST/HST, you will need to apply with the CRA. The process is quite simple and can be done completely online via the Business Registration Online (BRO) program.

When you register, you’ll become a GST/HST registrant and receive a nine-digit business number. To inquire about your GST/HST number by phone, call the CRA at 1-800-959-5525.

Step 2: Collect the GST/HST

As you start charging taxes to your customers, things can get messy fast if you don’t know what you’re doing. Here are some tips on how to efficiently manage collecting taxes. 

Find out which GST/HST rate to charge

You will charge tax based on where your business is located, known as your place of supply, and your type of supply, which we’ve covered above. You can refer to the GST/HST provincial rates table and use the GST/HST calculator here. 

Know what to include on your receipts and invoices

Be sure to inform your customers that GST/HST is either included in pricing or will be added separately. This information must be clearly indicated on your invoice, receipt, or contract, or posted on a sign easily visible to customers. Don’t forget to include the GST/HST rate being charged, the date, and your registration number on the invoice, receipt, or contract that you’re providing to your customer.

Organize your bookkeeping records

When you start collecting GST/HST, you’re in charge of setting the funds aside. Once you complete your GST/HST return, the amount you owe will be confirmed. At that time, you can send funds to the CRA. Keeping good records will be worth the time and effort when it comes to filling out the GST/HST return. 

Your records should allow you to calculate the amount of GST/HST you collected, the amount of GST/HST that you paid for your business expenses, and the amount of tax you can deduct from your net tax. 

Pro tip: Keep your records for six years, just in case the CRA asks for a copy of them.

Step 3: File a GST/HST return 

At this point, you’ve done the heavy lifting of collecting taxes from your customers. Now, it’s time to report the GST/HST you collected to the CRA. 

All you have to do is submit a GST/HST return. Be sure to check if you are required to file online. You may also have the option to file in person at a participating financial institution or by mailing in your GST/HST paper return.

How to use the quick method for GST/HST

Before starting your GST/HST return, make sure you have all your numbers ready. If you are eligible, a simplified way of calculating the GST/HST payable is to use the quick method. The net tax you’ll have to pay is based on the remittance rate for your business. 

As a bonus, you’ll be able to apply for a 1% tax credit on the initial $30,000 of sales based on eligible supplies. 

Some professions, such as accountants, lawyers, and financial consultants, aren’t eligible to use the quick method. So, if you’re using the regular method, you’ll need both the GST/HST amounts collected from customers and paid on expenses. 

Step 4: Pay the taxes you collected 

Any taxes that you have collected are funds that you have taken from someone “in trust for the Crown.” Simply put, you’re the one responsible for collecting taxes on behalf of the government. They must be remitted to the CRA along with the GST/HST return. 

The amount due is generally due at the same time you file your GST/HST return. Depending on your business, you may have to submit a return monthly, quarterly, or annually. Be sure to file by the deadline—or you may face penalties and interest charges. 

Filing your GST/HST return with confidence

By following these four steps, you’ll be able to collect and remit your taxes with ease. Once you have a proper system in place, it should be smooth sailing when it comes to tax filing time.

Remember, the CRA has lots of guidance available for completing your GST/HST return. You can access line-by-line explanations, examples for both accounting methods, and even video tutorials. The General Information for GST/HST Registrants guide is very helpful, as is the CRA’s page on GST/HST for Businesses.