HST GST Registration ...Should I? Must I?A Guide to Understanding HST GST in CanadaLet's chat about how HST GST works and Canadian HST GST registration so you can claim your input tax credits. GST stands for goods and services tax ... HST stands for harmonized sales tax, so get your cup of tea (bring the whole darn pot!) and meet me back here so we can get started. HST GST registration is mandatory if a business's taxable sales exceeds $30,000 annually. If you are registered for GST, you are automatically registered for HST as well. The exceptions (there are always exceptions) are taxi or limousine operators. They must register regardless of their sales volumes. If your business earns less than $30,000 in yearly sales, then registration is optional ... but hold on before you click away ... you may want to voluntarily register for GST/HST ... keep on reading to find out why. Here is what will be discussed and discovered on the topic of HST GST Registration:
Here are links on this site to other articles and sidebars that might interest you ... after you have completed your HST GST Registration:
May 1, 2010 is an important date. Generally, HST begins to apply to any amount that is paid without having come due OR comes due ... if the amount relates to the period July 1, 2010 or later. There are some exceptions. Your GST registration automatically registers you for HST. Reminder Before I begin I would like to remind you there is a difference between information and advice. The information provided in this article or on this site should not be construed as advice. Please make yourself familiar with my disclaimer. The Bookkeeper's Handy Reference
BC HST will have point of sale rebates when it goes into effect July 1, 2010. Find out more here. Ontario HST will have rebates and exemptions when it goes into effect July 1, 2010. Find out more here. HST GST Registration - A Tax Planning Opportunity It is recommended that you voluntarily register for GST/HST even if your annual sales are less than $30,000. Why? ... HST GST registration enables you to recover your input tax credits (ITCs) on business purchases and GST/HST paid on startup costs. ITCs are credits you are allowed to claim to recover any of the HST GST you paid on your business purchases. This means GST/HST is paid only by the end consumer as your GST/HST ITCs neutralize the tax for your business. You must be registered to claim them. You cannot recover ITCs incurred prior to HST GST registration. This is where good tax planning comes in. By voluntarily registering your business while you are in the startup stage, you will be able to recover your startup costs. If you wait to register, you have lost out on recovering your ITCs related to your startup costs. CRA does not allow (in most cases - there are always exceptions as I said earlier) you to retroactively register.
Consider this - By not registering, you do lower your prices to your customers (hey they gotta love that) by 5% (our current rate) but hold on ... you also increase your cost of doing business 5% by not being able to claim the ITC as a non-registrant ... hmmm ... There is the disadvantage that once HST GST registration occurs, you will have to track the GST/HST collected and paid out. But I think this disadvantage is offset by the reduction in your total taxes paid. An added benefit of HST GST registration - it makes your business look more credible and legitimate. Remember, GST/HST is tax neutral to registered businesses. The customers that will be most affected by your decision to charge HST GST are retail customers. If most of your competitors are charging HST GST, then these retail customers should be neutral to you being a HST GST registrant and charging HST GST. The Smallbiz Builder Newsletter (September 2009) points out that CRA has a FIRST AUDIT PROGRAM FOR GST/HST. Its main objective is new businesses. The audit is triggered by filing your first HST GST return with a refund balance. The CRA are interested in verifying the existence of your business and your startup costs. They also want to ensure you are aware of your rights and responsibilities and have adequate books and records. If CRA finds your books and records are inadequate, they will make recommendations and answer any questions you may have. A short economics lesson because I find it interesting! Goods and services tax is a value added tax (VAT) on goods and services produced by businesses. This tax is passed along to the consumers of the products and services so sometimes it is also referred to as a consumption tax (as opposed to income tax which is a tax on your earnings). Businesses operating in Canada are responsible for collecting the tax and remitting the tax funds to the government ... which means they, not the government, bear the costs associated with the collection. Canada adopted GST in 1991 to replace the manufacturers' sales tax which taxed the total resale value of a manufacturer's goods ... not just value added ... VAT is a regressive tax. Wikipedia describes a regressive tax as one that "imposes a greater burden (relative to resources) on the poor than on the rich - and there is an inverse relationship between the tax rate and the taxpayer's ability to pay as measured by assets, consumption, or income. What I find interesting in this is that I always thought of GST as a fairer tax because everyone had to pay it - rich or poor. The rich have more discretionary income so they spend more and they pay more tax. The poor have less to spend so they pay less and when you factor in zero rated and exempt rated goods and services which includes most basic needs ... plus the GST rebate you receive (if you filed your tax return) ... the tax is applied mainly to discretionary income ... so GST seems more progressive to me than regressive ... hmmm I'll have to do more research. How to Register for GST/HST (It's Free) There is no fee to register for GST/HST. You have a few ways available to you for HST GST registration:
Once you have completed the HST GST registration process, CRA assigns you a Business Identification Number (BIN) that you will use when dealing with CRA. You must then begin charging GST/HST on taxable goods and services you provide to your customers. It is a good practice to quote your GST/HST number on all your invoices. If you are using accounting software, there is normally a spot to enter your GST/HST number so that it will print automatically on your invoices. In QuickBooks, it is found under the "Company" drop down menu. You also track your ITCs paid on your business purchases (your great bookkeeping system is now starting to pay off some dividends) then ... ... when you file your report on form GST34-2 to CRA, you recover your ITCs by offsetting them against the GST/HST collected. The formula goes like this:
If your ITCs exceed your GST/HST collected, CRA sends you a refund ... Whoo Hoo! ... and if you signed up for direct deposit during HST GST registration, the refund goes right into your business account, usually within 2 weeks of filing online. It's great. No running to the bank.
So take note, this means you are required to maintain adequate books and records in order to report and pay your GST/HST. GST/HST Memorandum 15-1 General Requirements for Books and Records has information on how these books should be kept. GST/HST Memorandum 15-2 Computerized Records also has information on books and records. If you have registered for My Business Account with CRA, you will have online access to your account information. My Business Account is a real time saver ... no more waiting on the phone to speak with an agent ... just look it up yourself 24/7. I love it! Of course the phone option, where you can speak with an agent, is still available to you if you can't find what you are looking for. :-) The Bookkeeper's Tip - As of May 19, 2009 CRA Agents must identify themselves by providing you with their first name. It is a good practice to record the agent's name and agent reference number (you must ask for this) whenever you ask for and follow their advice ... ... BUT I learned, while taking my H&R Block tax course, that CRA is not bound by the information the agents provides ... however, it may assist in having penalties and interest waived in the event of a dispute. Take a moment now and make sure you are familiar with GST/HST tax rates on out of province sales and the rules for charging GST/HST on internet sales. After HST GST Registration After the HST GST registration process is completed (okay you've come this far ... don't give up now! ... just take a deep breathe and let it out slooooowly ... feel better?) and you have your BIN, you need to consider which reporting method you want to use. Here are 2 other choices to consider instead of using the regular method I explained above. These methods were introduced to help ease the administrative burden for businesses that have: The Quick Method of bookkeeping can be used if you have less than $200,000 in sales (again there are some exceptions) This method is great for you people who don't keep an up-to-date set of books because you don't have to track your ITCs separately ... ... Instead you multiply the amount of your sales (including HST GST) by a rate (which is less than the rate of tax you charge - between 1.8% and 3.6% ). ITCs on capital purchases are assessed separately. The remittance rates are dependent on:
If you select the Quick Method of bookkeeping, you must use it for at least a year. The Simplified Method can be used if you have less than $500,000 in sales. Like the Quick Method, you don't have to track ITCs separately ... but you do have to track your taxable purchases. When reporting GST, the purchases are multiplied by (the current GST rate / (100 + the current GST rate)), which means 5/105, to isolate the GST ITCs. In an HST province replace the GST rate with the HST rate ... When reporting HST, the purchases are multiplied by (the current HST rate / (100 + the current HST rate)), which means 13/113, to isolate the HST ITCs. The amount calculated is then subtracted from HST GST collected. The difference is remitted to CRA or refunded by CRA. How to Claim Missed ITCs on Previously Filed GST/HST Returns You have now completed your HST GST registration, filed your GST/HST return and discover ... ah heck! ... that you missed reporting some input tax credits for that period. Is there any way you claim these missed ITCs? Yes. Unlike your income tax return where you have to file a T1 Adjustment to correct any errors or omissions ... with GST/HST, you just claim them on your next return. As a small business, you have up to fours years from the date your return was due to claim an ITC. Every time I file a GST/HST return, I close the books up to the end of the reporting period (and make a back up copy ... just in case ... clearly marking it) so I can't post any more transactions to that period. When I get straggler receipts (I mean straggler as this should not be a common practice), I date them for the first date of the currrent period. In the reference or number spot, I type in the actual date of the receipt so I can trace it back to prior period bank statements or credit card statements. I do this because I don't want to have to reproduce reports and ledgers pertaining to past periods for immaterial amounts ... the information has already been given to the client and they are not likely to make a different decision as a result of these few entries. The ITC will now be claimed when I file the next GST/HST return. The Bookkeeper's Tip - As a safeguard, print out (or make a pdf copy of) the detailed GST/HST report and attach it to your copy of the back of the HST GST return. If you are ever audited, you will know exactly which credits were claimed for each period ... no reconciling ... or scrambling to find the information for the auditor. This practice is a departure from the matching principle but any amounts are immaterial to make it an acceptable practice. If you find you are continually having to submit ITCs for prior periods, then you need to make some changes in your bookkeeping procedures ... and it's a red flag if the dollar value of those missed receipts are material. At yearend, make sure you hold your books open long enough to get as many of these straggler receipts as possible into the proper period (in this case - year) ... especially if it is a material amount ... ... but once you file an official report with the government, whether it's a HST GST return or an income tax return, close your books and back them up. Remember, you can also book an accrual to a period ... just be sure to reverse it in the next period when you book your "actuals". Mandatory HST GST Registration When you meet or exceed the small supplier threshold of $30,000 in a quarter, you are considered registered and must begin collecting GST/HST on all sales after the threshold has been met. HST GST registration must officially be applied for within 29 days of collection beginning. If you meet or exceed the small supplier threshold of $30,000 over four consecutive quarters, you must begin collecting GST/HST one month after the fourth quarter. You have 29 days from when you begin collecting to officially register. If you do not officially register when you meet the threshold of $30,000, you will lose your ITCs ... ouch! Expensive! Authorzied Vendors - HST GST Registration It is your responsibility to ensure that any of your suppliers charging you GST/HST are legally registered with CRA to do so. To assist you in determining this, CRA has a GST HST Registry where you can check the supplier out. So if you are ever concerned about a particular vendor beign a HST GST registrant, use the registry to set your mind at ease or confirm your suspicions. You are probably wondering "Why do I care?" Well, if you submit ITCs from a vendor who was not authorized to collect HST GST in the first place ... during an audit, these ITCs will be rejected and you will be expected to pay back the unauthorized ITCs. Canada Revenue Agency (CRA) Guides on GST/HST If you require more information on HST GST Registration, the main CRA guide is Publication RC4022 General Information for GST/HST Registrants. However, there are a lot of pamphlets and booklets published by CRA. Some are specific to different industries like travel and convention, or construction. Here is an index to them all - GST/HST Publications and Forms. This concludes my chat on HST GST registration. Main Source: CRA
The Canadian Tax - LinksGo to Input Tax Credits and Your Personal Vehicle
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