If you are a recently self-employed Canadian or you are thinking about starting your own business / adding extra income with a side gig, you may be curious about what the tax requirements and implications would be. Aside from the extra info you’ll include on your tax return, you might also be required to register for a GST/HST account, meaning you’ll be collecting and remitting sales tax.
What is GST/HST?
The Goods and Services Tax (GST) is a 5% tax applied to most taxable items and services in all provinces and territories in Canada – except where there is an agreement to have GST collected together with Provincial Sales Taxes (PST). In that case, the GST and PST are replaced by a Harmonized Sales Tax (HST). These are provinces and territories that are classified as “participating”.
Alberta, for example, has no provincial sales taxes so a $1.00 bag of pretzels will cost you $1.05 at the checkout. In Ontario, for example, where there is HST, that $1.00 bag of pretzels would cost $1.13, as the HST in Ontario is currently 13%.
Am I Required to Charge/Collect GST/HST?
Not all goods and services are subject to the GST/HST and not all businesses are required to charge, collect and remit the tax. Whether or not GST/HST is a factor in your business comes down to two factors: the type of business you’re running and the amount of sales you have.
The Canada Revenue Agency categorizes goods & services into three groups:
- Taxable – GST/HST is charged, collected and remitted. As a registrant, you may also claim credits (called Input Tax Credits, or ITC’s) for GST/HST paid to produce the goods and services.
- Zero-rated – GST/HST is not charged, collected or remitted, but as a registrant, you can claim ITC’s for GST/HST paid to produce the goods and/or services. If your business is selling cucumbers at the farmer’s market, for example, no GST/HST is charged/collected from your customers because fresh vegetables are zero-rated. Also, 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 charged, nor collected and as the registrant, you can not claim ITC’s for any GST/HST paid. Examples of exempt services include music lessons and childcare fees.
The full list of each group type is available on the CRA’s web page Charge the GST/HST.
It’s about your sales
With a few exceptions (including taxi drivers and ride-share partners), the requirement to register for the GST/HST doesn’t come into effect until you’re no longer a “small supplier”. This is often called the $30,000 rule.
You’re no longer a small supplier when your revenue (before expenses) is more than either:
- $30,000 in a single calendar quarter (3 consecutive months), or
- $30,000 within the previous four consecutive calendar quarters (not a calendar year). The distinction between a calendar year and four quarters is an important one. For example, if your business brought in more than $30K between July 1 and June 30 the following year, you’ve passed the threshold as a small supplier even though your revenue was less than $30K each calendar year.
As soon as your business makes $30,001 in a single quarter or in the last four quarters combined, you are no longer a small supplier. This means you’re required to register for GST/HST right away and begin to charge, collect and remit the tax. That first sale you make at this point should include GST/HST as per place of supply.
Voluntary Registration for GST/HST
In some situations, voluntarily registering for the GST/HST makes sense, even if you are not required. One reason is to get a head-start on proper record-keeping. Another reason would be if you know your business was going to exceed the Small Supplier threshold fairly quickly – it’s $30,000 in sales not profit.
Voluntary registration for the GST/HST is a good idea if you produce or sell zero-rated supplies. Although not required to charge GST/HST on sales, ITC’s can be claimed. Another good reason to register voluntarily is if you have to spend a lot of money upfront to get your business going, because the ITC’s on the first few returns would provide a refund of GST/HST paid, and that extra cash could help the business grow a little faster.
If you’re required to register for the GST/HST for your self-employment activities, knowing the details can be very helpful and help to avoid penalties and interest.
How Do I Start Reporting/Tracking My GST/HST?
Once you’ve determined you are required to, or voluntarily choose to, register for the GST/HST, you will need to register with the Canada Revenue Agency. The process is quite simple and can be done completely online via the Business Registration Online (BRO) program.
Once you begin collecting GST/HST, proper record-keeping becomes even more important. Too often new registrants forget to separate those funds and are faced with the consequences of poor record-keeping.
Staying organized with your finances is simple with QuickBooks Self-Employed, a mobile app that makes it easy to stay in control of your business finances and helps you prepare for tax time while on the go with effortless expense, mileage, invoice and HST tracking all in one place. Users of QuickBooks Self-Employed find an average of $4,340 in tax savings per year.
Use QuickBooks Sales Tax Tools
When it comes to keeping track of day-to-day business expenses, many entrepreneurs go digital. QuickBooks Self-Employed helps you stay in control of your business finances and prepare for tax time while on the go, with easy sales tax, expense, mileage, and invoice tracking. The app makes it easy to keep a close eye on the overall health of your business. With this app, you can see exactly how much money is going in and coming out, right from your smartphone or tablet.
Use QuickBooks Self-Employed’s expense tracking feature to automatically track and categorize your expenses with sales tax, so you’re ready come tax time. The category lists match the CRA’s T2125 form, so it will be easy to fill out when you file your taxes.
With the Sales Tax feature in QuickBooks Self-Employed, you can now track and account for the collection and payment of Goods and Services Tax (GST), Provincial Sales Tax (PST), and Harmonized Sales Tax (HST). Watch the video below to learn how to categorize your expenses and add sales tax in seconds, or read more here for a step by step guide on how to easily calculate sales tax with Quickbooks Self-Employed.
After you have registered for the GST/HST, and begin collecting and charging the GST/HST, you are required to let your customers know that GST/HST is either included in pricing or will be added separately. This information must be clearly indicated on your invoice, contract or posted on a sign easily visible to customers and must include the GST/HST rate being charged along with your registration number.
You are also required to complete and submit a GST/HST return. Depending on your business, you may have to submit a return monthly, quarterly or just one a year. Whatever the time frame, any GST/HST amounts that you have collected are funds that you have taken from someone in “trust for the Crown” – and must be remitted to the CRA along with the return. These funds are not to be kept by you, nor used by you, and because these are “Trust Funds” the CRA treats them very seriously.
Before starting your GST/HST return, have all your numbers ready. If you’re using the quick method, you’ll need the total amount collected in the reporting period. If you’re using the regular method, you’ll need both the amounts collected from customers and paid on expenses.
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!
TurboTax Self-Employed walks you through your taxes step-by-step, automatically prompting you to enter all pertinent self-employed specific deductions so you can be sure it is accurate and you get your maximum refund. Like all TurboTax products, TurboTax Self-Employed is backed our Maximum Refund Guarantee so you can file in complete confidence.
If you’re looking for more support, there are two TurboTax Live options for self-employed Canadians:
- TurboTax Live Assist & Review Self-Employed provides live, on-demand access to tax and product advice as you prepare your return, then a full review of the completed return.
- With TurboTax Live Full Service Self-Employed a TurboTax Expert will fully prepare, optimize, review and file your taxes for you. TurboTax Experts have an average of 17 years’ experience preparing taxes, and are available on-demand to take the stress out of tax time. Plus, TurboTax Live Full Service includes year-round audit support for added confidence.