GST/HST $30,000 Threshold
How does the $30,000 GST/HST rule actually work for a sole proprietor with employees?
If a sole proprietor's company takes in $200K in sales, but pays most of that out to employees as payroll + overhead fees, and the actual profit for the sole proprietor is less than $30k, does this mean he or she does not have to collect HST?
If the profit for the sole proprietor, is above $30k, does this mean he or she only has to charge on the sales that generated profit over $30k?
The question with an example scenario:
If I, even though sales were $200k, only actually make $70k in personal profit, does this mean I only have to remit HST for sales that generated beyond $30k of personal profit (which in the case is also $40k)?
To add more details to the question: the first segment in sales ($0 to $90k) turned up a profit for the sole proprietor of less than $30k; yet, sales from the 2nd sales segment ($90,000.01 to $200k) generated added profit for the sole proprietor over the original $30k (again, in this case, $40k... so $70k total profits before taking away what is supposed to be remitted as HST).
Does that mean the sole proprietor would only need to collect tax on sales made in the second segment?
Sorry to be the bearer of bad news ...
If you look
at the CRA publication RC4022 General Information for GST/HST Registrants
, you will see that GST/HST registration is mandatory when your taxable sales meets or exceeds the $30,000 threshold.
This threshold is not based on net profit ... but taxable sales.
I think you are confusing this a bit with how sole proprietors' income is taxed
... which is net profit.GST/HST is a neutral tax to business
, and actually reduces your total taxes (sales tax and income tax).
You can find the rules for mandatory GST/HST registration
in my article on GST/HST in The Tax
Anthony, you should be aware that if you do not officially register and start collecting the sales tax when you meet the $30,000 threshold, you will lose your input tax credits
... OUCH that hurts you directly in your pocket book!
It will also place on CRA's non-compliance
radar ... and you will likely be monitored more closely
... for years!
Also keep in mind that new place of supply rules
went into effect on May 1, 2010. The sales tax rate you collect is no longer based on your location.
You can find information about your GST/HST deadlines
and the GST/HST rates by province
in my tax compliance section.
I hope this helps you understand the tax compliance rules regarding GST/HST Anthony. If you have any more questions after following each link I have provided, please post back here.