GST Registration ...
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| Goods and Services | Tax Rate | Claim ITC? |
|---|---|---|
| Taxable - all goods and services unless listed as exempt or zero-rated | GST 5% HST 12-15% | yes |
| Zero-rated - basic groceries, prescription drugs and dispensing fees, medical devices, exports | 0% | yes |
| Exempt - used residential housing, long-term residential accommodation, most health, medical, and dental services, child care services, tolls, legal aid services, many educational services, music lessons, most financial institutions and insurance services,some non-profit services | Exempt | NO |
Need more information? You will find a more complete listing of taxable and exempt items on the CRA website under Businesses> GST/HST> Taxable or Exempt? .
Good references for any bookkeeper or small business owner are these pdf documents:
Ontario "What's taxable under the HST and what's not?" at http://www.rev.gov.on.ca/en/taxchange/taxable.html
British Columbia (BC) "What's taxable under the HST and what's not?" at http://hst.blog.gov.bc.ca/wp-content/uploads/2010/05/GST_PST_HST_List_v04.pdf
Click here for GST/HST Rate Table.
BC HST has point of sale rebates that went into effect July 1, 2010. Find out more here.
Ontario HST has rebates and exemptions that went into effect July 1, 2010. Find out more here.
GST Registration - HST 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.
You can recover some of your missed startup ITCs after your HST GST registration by ... bringing your capital assets that are still in use by your business onto your books at their current fair market value ... and claiming the GST/HST ITC on the transaction. ;O) Your expensed ITCs prior to your registration are lost. :O( |
Consider this - By not being an HST GST registrant, 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.
Startup Costs and Your First Audit By CRA
Once you have completed your free HST GST registration, you will have to file your first return. Here is what you should know.
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.
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:
- by internet - Business Registration Online (BRO) allows you to register for your Business Identification Number, GST-HST, payroll deductions, import-export accounts and if you are incorporated, corporate income tax. It is self serve. There are also some provincial accounts available. ... Once at the registration site, you will find a list of restrictions after you click on "Register Now" to help you determine if you can use this self serve method.
- by telephone -you can phone 1-800-959-5525. Look over Form RC1 Request for a Business Number (BN) as you will need all the information on that form available for the agent.
- by mail or fax - send a completed Form RC1 Request for a Business Number (BN) to your tax service office.
If you are registered for GST, then you are automatically registered for HST.
Mandatory GST Registration - Mandatory HST Registration
Meeting or Exceeding the $30,000 Threshold
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
How to Verify a Supplier is Registered to Collect HST GST
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 being 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.
After GST Registration - HST Registration
How HST GST Works - How HST Works
How to File Your GST/HST Report on Form GST34-2
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:
GST/HST Collected on Sales (line 105)
- GST/HST Input Tax Credits (line 108)
= GST/HST Amount to Remit to CRA (line 109)
A negative number on line 109 means you will be receiving a refund.
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.
Tax Filing Learn how your GST HST accounts work. |
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. :-)
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 GST Registration - HST Registration
Filing Methods - 2 alternative options available to consider
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.
Following 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:
... further complicated by the provincial sales tax reporting.
In my opinion, from a bookkeeping perspective, each of these "simplified" methods are harder to apply than using the regular method of tracking your ITCs ... so think through your choice.
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 ... well not really ... you have to have a method to pull out or track your exempt sales, eligible sales by tax rate paid ... and personal use supplies.
... 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:
- whether you have a manufacturing, retail or service business
- the province your business is located
- where your services are provided.
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 ... well again, not really .... you do have to track your HST and GST taxable purchases separately by tax rate paid.
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 appropriate 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.
After GST Registration - HST Registration
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.
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".
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.
In my opinion, the advantage of HST GST registration is it increases your cash flow and reduces your overall taxes ... which gives you the opportunity to grow your business.
This concludes my chat on HST GST registration. If you have any questions about HST GST registration, please don't hestitate to ask them in the Bookkeeping Forum.
I can't promise I can answer your question, but I'll certainly try to find the answer for you.
Main Reference Source: CRA publications and articles on HST GST Registration
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The Canadian Tax - Links
Go To GST HST in Canada Index
Go to Transitioning to Harmonized Sales Tax, A High Level Overview
Go to Harmonized Sales Taxes Transitioning, The Bulletins
Go to Input Tax Credits and Your Personal Vehicle
Go to GST/HST Rates
Go to GST/HST Compliance Information and Deadlines
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