Basics, CRA & Revenu Québec, Self-Employed, Tax Basics

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

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 work involved at tax time when filing you annual income tax return, you might also be required to register for, and charge sales taxes.  Collecting GST/HST isn’t always mandatory for self-employed individuals, but you would have to know if the rules apply to you, and when they do.

Let’s review the basics of GST/HST.

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).

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 the GST and PST are combined, that $1.00 bag of pretzels would cost $1.13, as the HST in Ontario is 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 either.  To determine whether or not GST/HST is a factor in your business, you must consider both the type of business you’re running and to a lesser extent, the amount of sales you have.

It’s about your business

The first factor which must be considered when determining of you or your business must register for the GST/HST, is the type of goods and services you are  providing.

The Canada Revenue Agency categorizes goods & services into three groups:

  1. 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.
  2. 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.
  3. 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 of is available on the CRA’s web page Charge the GST/HST.

It’s about your sales

Although most goods and services are subject to GST/HST, depending on your business, you may not be required to register for the GST/HST, even if you’re selling taxable goods or providing a service that is considered to be taxable.  In this case, it now depends on the amount of your sales and revenue.

For most small business owners, the requirement to register for the GST/HST doesn’t come into effect until you have earned $30,000 in sales or revenue.  Prior to that amount, you are considered to be a “small supplier”.  As soon as you exceed that $30,000 threshold, you are required to register for GST/HST right away and begin to charge, collect and remit the tax.

Some exceptions do apply, however.  Taxi drivers and ride-share partners are required to register for the GST/HST right away.  There is no small supplier status for these professions.

The $30,000 “Small Supplier” threshold that is often referred to, ends when you reach either:

  1. $30,000 in revenue in a single calendar quarter (3 consecutive months), or
  2. $30,000 in revenue within the previous four consecutive calendar quarters (one year).

* Calendar quarter means a period of three months beginning on the first day of January, April, July, or October in 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.

Example

Amanda started selling her handcrafted computers in July. Business was great from day one and by the end of the year, she has sold $15,000 worth of computers.  Amanda was not required to register for the GST/HST because with annual sales under $30,000 (she earned $15,000) she is still considered to be a small supplier.

In January, Amanda joined forces with Emily, and their sales kept growing.  By the end of January, they had sold another $15,001 in computers. Even though Amanda’s sales stretched over two calendar years, she earned $30,001’s, passed the threshold for registering for the GST/HST, which means she loses her small supplier status.  Amanda must now register for the GST/HST and begin charging, collecting and remitting on every computer she sells going forward.

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 – So distributors or businesses which re-sell high-end items could be required to register fairly quickly.

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.

Registering, Reporting, and Record-keeping

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?

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.

You will need some information to complete the registration, including:

  • Your Social Insurance Number
  • Address of the business – which could be your home
  • Your business’s name – it could be your name too, if you operate a sole proprietor
  • Information about your business activities such as income and line of business

 

How to Report GST/HST?

You’ll also want to decide if you’ll be using the regular method or “quick method” to calculate your GST/HST payable. In a nutshell, the Quick Method allows you to remit a percentage of GST/HST to the CRA, rather than tracking each item and their Input Tax credit.  Learn more about each method on CRA’s web page Quick Method of Accounting for GST/HST.

Compliance

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.

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.

Record-keeping

Once you begin collecting GST/HST, proper record-keeping becomes even more important.  Too often new registrants forgot to separate those funds and are faced with the consequences of poor record-keeping.

Ideally, you should set aside the GST/HST collected immediately, preferably into a separate bank account. (Again, you’re just collecting the money.) If it’s not feasible to do this for every sale, total the daily or weekly GST/HST amounts collected.

The GST/HST collected is only part of the equation as you may also be able to claim ITC’s.  If you pay GST/HST on supplies or services to operate your business, you can claim these amounts as deductions and include them as credits on your GST/HST return.

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.

GST/HST Return

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.