GST/HST $30,000 Threshold

by Anthony
(Toronto)

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?



image of fancy scroll lines



Hello Anthony,

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 section.



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.

Comments for GST/HST $30,000 Threshold

Click here to add your own comments

Jul 28, 2010
Thank you for the feedback...
by: Anthony

First my company was PST exempt, but now I have to worry about 13% on total sales.

I actually have almost no input for HST to claim, as most of the money goes out to employees; therefore, I will have to raise my rates to retain the same level of profit, or be willing to accept less profit overall for the same amount of work.

I hate the HST.

Jul 28, 2010
HST is a neutral tax to your business
by: Bookkeeping Essentials

Anthony,

Maybe I'm missing something here, but ...

The HST will result in an 8% price increase for your non-commercial customers / clients ... but because you will no longer have your PST expenses included with your operating expenses, your net profit increases ... unless you feel your non-commercial customers/clients will purchase less of your services ... or you reduce your prices by 8% so your non-commercial customer is paying the same amount as before.

All your business/commercial customers get to claim the input tax credit, so it has no effect on them.

The thing is, all your competitors are in the same place, so the tax should not result in a loss of business to competitors.

Prior to HST, the PST costs you did have could not be recouped. Now you get to claim them through your input tax credits and get your money back. This puts more cash in your pocket ... and reduces your income taxes to be paid.

When the no smoking laws in pubs and bars came into effect, every bar owner was sure they were going to go out of business. As far as I know, there are still bars ... and people still frequent them.


Oct 11, 2010
Clarification
by: Anonymous

Hi,

I just wanted to point out one statement that "Bookkeeping Essentials" had stated which is not correct:


"All your business/commercial customers get to claim the input tax credit, so it has no effect on them."

Only the Business / commercial customers that are GST/HST registered will get to claim the ITC.

A lot of small businesses are not registered!

Oct 12, 2010
Voluntary GST HST Registration
by: Bookkeeping Essentials

That is an excellent and valid point ... and thank you for pointing it out.

However, if a small business is not registered, they have the option to voluntarily register prior to the $30,000 threshold. This option is available to all businesses.

It is the business owner's choice to forego collecting input tax credits (ITCs) that would make the sales tax neutral to them.

I may be missing something because I've never understood why a business would choose to not claim ITCs. My understanding is that GST/HST registrants pay less tax.

Thank you once again for bringing this point up.


Oct 12, 2010
Option to register / not to register for HST/GST
by: CParks

Most small businesses who are selling or providing taxable goods or services and are under the $30,000 threshhold that choose not to register for the GST/HST usually make the choice not to register based on the extra burden to keep track of the HST collected and HST paid.

They sometimes feel it may open the door for possible HST audits. Some feel also that they will lose customers by charging an extra 13%. (If they are selling to the public.)

Businesses that provide services usually do not have a significant amount of ITCs to claim.

These are not my arguments, I am simply stating the reasoning behind most small busineses that do not register when its optional.

Basically, they feel the effort is not worth the ITCs they they will be claiming.

May 03, 2011
about $30,000
by: Anonymous

Question:

I already registered and got a HST number last year because my sales were over $30,000.

When should I start to collecting HST this year? from the beginning, the first transaction or from when my sales are over $30,000 this year?

May 03, 2011
Sales Tax on Sales
by: Lake

Hi,

Once you are a GST/HST registrant, you must collect GST/HST on every sale according to place of supply rules.

Nov 09, 2011
HST $10,000 Annual Sales
by: George, Toronto

Should I be billing the company I consult with HST when I only make $10,000 yearly and I do not have many expenses?

Nov 09, 2011
Consider Voluntary Registration
by: Lake

Hi George,

I moved your submission to a GST/HST page that already existed.

If you are not a GST/HST registrant with CRA, then you do NOT charge / collect GST/HST.

You may, however, want to consider voluntarily registering for HST. Click here to read more on this topic.


Dec 28, 2011
Virtually NO ITC to claim
by: Olga

Here is one good example of services with virtually no ITC to claim:

truck-driving services by a self-employed individual (not an owner-operator). Once you hit #30000 in sales you have to start charging HST; meanwhile as a driver using the company's truck you have virtually no expenses to claim (not even meal for short haul), therefore no ITC to be used against HST.

$30,000 mark looks ridiculosly low nowadays; even very small businesses collect more; otherwise why bother; just a remark ;)



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Hmmm, I'm not familiar with the trucking industry, but here's my questions Olga.

If the trucker is self-employed, why is he driving someone else's equipment? Does he actually meet CRA's criteria for self-employed - written contract, multiple clients, control over what is done, when and how it is done, ownership of tools, financial risk and opportunity for profit? Is the business owner just trying to reduce payroll taxes by classifying the worker as self-employed rather than as an employee?

Jan 29, 2012
Confused About HST's Threshold
by: Michelle

I'm just wondering if you can answer a question for me.

I was making over $30,000 (as a hairdresser in my home) and have been collecting and paying HST quarterly for the past couple years. This year I had a baby and my income has dropped down to about $20,000.

For 2011, I was paying my HST quarterly, but now I am wondering if, because my income is now less then $30,000, will I be get an HST refund? Do I un-register my HST number?



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Hi Michelle,

Once you are registered for HST, you continue to file, even if your income drops below the $30,000 threshold. You would only get a refund if your ITCs were greater than your HST collected. If you use the Quick Method of Accounting for HST, you will never receive an actual refund because the refund rate is built into the Quick rate.

You could close your HST account, but there is some settling up (returning) of ITCs previously claimed that are no longer elgible for the credit. (Follow the link for more information on this.)

If you expect your income to pick up again over the $30,000 threshold, you might not want to bother closing your HST account.

Jan 31, 2012
not registered and over the 30M for the year
by: Jeanne

What happens if for the year you have sales revenue of approximately $50,00; reaching over the $30,000 threshold in September? I registered for HST in January; am I responsible for HST from September on? or for the whole year?



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Please see my chat on Mandatory GST/HST Registration.

Apr 14, 2012
Mixture of foreign and Canadian sales
by: Anonymous

Since foreign sales are exempt from HST, I assume that the $30,000 rule kicks in only when the Canadian sales exceed that mount.

Example, if my online sales of artwork is $50,000 outside Canada and $28,000 within Canada, I would think that the $30,000 exemption still applies even though the total sales is $58,000.



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Unfortunately no.

On CRA's site see Businesses> GST/HST> Registering an account> Small supplier limit calculation:

"In your calculation to determine if you are a small supplier, you have to include your worldwide revenues from your sales of goods and services that are subject to GST/HST, which includes zero-rated sales and supplies.

You also have to include revenues of any of your associates. You have to exclude financial services, goodwill, and sales of capital property."


Apr 21, 2012
Voluntary HST Registration
by: Phil

Hi,

I registered for the HST with the assumption I was going to make over $30,000 this year. I've just quit my job and will become a regular employee at another company - therefore I am not using my HST number anymore.

I've made about $18,000 to date and collected HST on that. Now that I'm no longer going to make over $30,000, must I repay the HST I gathered or am I exempt from paying that since I won't meet the threshold this year?

Thanks!



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Hi Phil,

You registered and collected the HST in trust for the government, so you must remit it. The money is not and never was yours. You were acting as a trustee for the government.

Remember that you can also claim your input tax credits (HST you paid on business related purchases), so you will be reporting and remitting the net amount.

You should cancel your GST/HST account if you are not in business anymore. If you decide to keep it, you will still have to file regular GST/HST reports, even if you have no business activity.

May 10, 2012
GST Registration
by: Deborah, Ontario, Canada

I have a small chocolate business that makes less than $30,000/annum. Am I supposed to be charging GST on items or is it only if your sales are over $30,000 (that was my understanding)?

Also, I am going to be opening up a shop, so I am going to register now regardless of sales, but what do I do with the sales I have made that have no GST?

Many thanks.

May 10, 2012
GST/HST Registration
by: Lake

Deborah, you only begin to charge GST/HST on sales on and/or after your date of registration with CRA has been approved.

No one is permitted to collect GST/HST on sales items if they are NOT registered with CRA.

Good luck with your shop!

Apr 15, 2013
$30K from all revenues??
by: Beth

Hi!

I am a part time hair stylist and my business makes under (but near) $30,000 per year.

I have been thinking about getting a part time job to fill a few of my free days, but was worried it would bring my total over the mark. I do not want to have to charge my clients an extra 13% HST just because I want to get out of the house a few days a week.

So my question is does EMPLOYMENT INCOME from a company count as revenue toward the $30,000 SELF EMPLOYMENT INCOME threshold or are they two separate incomes?


Thanks!
Beth



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Hi Beth,

The $30,000 threshold pertains to your self-employed income. Employment income is not a factor in calculating this.

Your employment income will be subject to payroll taxes.

Enjoy your time out of the house!

Jun 06, 2013
When can I deregister for HST?
by: Anonymous

I'm self employed and was making $30,000+, but didn't know to file for HST because I'm contracted to work in nursing homes and i"m paid by OHIP, which we were told made us exempt.

The CRA disagreed and registered me for HST in October. They say I owe from 2008-now. I was told to collect HST from my company, but they are exempt because they are paid by OHIP.

Last year I made $18,000 and this year I will be no better... I hear you still have pay HST no matter what your income once you've been registered.

I was also told you have to stay registered for 1 year but can deregister once you've had a year of below $30,000. Do I have to wait for October or can I deregister for HST now?

It's crazy to have to pay so much when you make so little.



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Check out this forum posting ... How do I cancel GST/HST Account ... it lets you know the requirements and which forms to complete.

Jul 10, 2014
HST Collection Over??
by: Bennry

Hi,

This statement must have been the basis for my registration/collection decision.

"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."

Worked as an IT Contractor and I started collecting HST on month 8's invoice.
I surpassed the small supplier threshold after month 6's invoice though.

Did I do things properly? if not, what are the options? Possible turnouts?

Please let me know your thoughts.



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My thought is, have you registered for GST/HST yet?

Jul 24, 2014
Back-dated Registration
by: Lynne

I registered for HST and backdated the effective date to the beginning of the year. I did not charge customers HST, but I am still responsible to remit the amount to the CRA.

How do I do the accounting for me paying the HST out of my own funds?

Jul 29, 2014
Back Dated Registration
by: Lake

If it's just a few invoices (I assume it's in the current tax and fiscal year), edit all your sales invoices to calculate the tax then prepare your sales tax return and remit the funds owed to the Receiver General.

Your accounts receivable will have amounts uncollected due to the addition of the sales tax. Create credit memos that offset to HST Expense on your income statement.

Dec 10, 2014
HST exceeding Threshold
by: Anonymous

Hi,

I wanted to know if my income goes over the threshold in the last quarter, do I have to remit HST on the entire yearly income or the difference $32K-$30K?

Also if I register for HST in November, for what period I can claim ITC i.e for the whole year or only for Nov And Dec.?

Please advise.

Dec 12, 2014
HST Threshold
by: Lake

Check out the information posted here and you should get the answer to your question:

GST/HST Threshold and Mandatory Registration

If you require more clarification, call CRA and they help you sort it out.

Feb 20, 2015
Vehicle allowance
by: Anonymous

My husband works for a company and runs his own personal truck. He's paid $24/hr (non taxable benefit) to cover all costs (gas, maintenance, etc.)

This is not on his t4. Some are telling him to get a GST #, others are saying no way! This allowance is just an allowance to cover his costs. He does not own his own company, still paying regular taxes thru the company he works for. This is just his personal truck that he gets a separate non taxable cheque for.

Please enlighten me which way is correct. Thank you!

Feb 22, 2015
Vehicle Allowance
by: Lake

If your husband is an employee using his personal vehicle for work, the vehicle allowance is to reimburse him for the cost and wear and tear on his vehicle. As long as the amount is within CRA's limit of a "reasonable" allowance, it is a non-taxable benefit. Using his vehicle does not make him an independent contractor. He is still an employee.

Mar 06, 2015
Downsizing Company
by: Anonymous

I plan to downsize my company in the near future (currently earning about 70,000.00), and expect it to reduce to under the $30,000.00 GST/HST threshold. If that happens in 2015 - and my income is less than $30,000.00 do I still need to send in GST/HST?

Mar 07, 2015
Downsizing Company
by: Lake

Yes you still have to collect GST. You can only stop collecting GST/HST if you close/cancel your account. If you do this, you will no longer be able to claim input tax credits (IYCs).

Please see the post on How To Cancel Your GST/HST Account for more information.

Jun 08, 2015
HST threshold
by: JVW

Hi,
There have been a few others who have asked about crossing the $30k threshold part-way through the year and what that means for HST remittance. You refer them to another part of this site, but the question is not answered there.

The CRA website isn't helpful either in answering that question, and calling them multiple times yields different answers.

Can you clarify once and for all whether you are responsible to remitting HST for the full year's sales if you only passed the $30k mark in, say, June or September?

Thanks very much
Julie

Jun 14, 2015
Julie
by: Lake

Here is my understanding:

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.

Jan 24, 2016
GST Registration
by: Anonymous

Hi,

I was under the assumption that $30,000 is your profit rather than sales.

I went over the $30,000 by about $15,000, have not collected GST or Registered. What should I do?

I will be registering for GST ASAP. Do I pay out of pocket for GST that was not collected on the 15,000?


Jan 25, 2016
What happens if I don't register for GST?
by: Lake

What happens if you don't register for GST once you have hit the $30,000 threshold? You lose your ITCs because you can only claim ITCs from the date you registered. :0(

It is my understanding that you now have to pay for the GST you should have collected out of your business pocket as you cannot back-bill GST.

Check out this page on the CRA website:

http://www.cra-arc.gc.ca/E/pub/gl/p-118r/p-118r-e.html

If "the invoice or agreement is silent with respect to the tax payable and the supplier's records do not suggest that tax was included in the amount charged", tax will be added to the amount.

"Tax-included assessments (5/105) may be made in instances where the supplier indicated on the existing invoice or sale documentation".

Feb 03, 2016
Contractor
by: Warren

I am an independent contractor selling various items. I have an HST # when it was set up I was making 6 figures but for the last 3 years I have paid HST but have made under $30,000.

I was told by an accountant to pay quarterly but I'm thinking I should stop remitting and am wondering if I can recoup the last three years.

Feb 03, 2016
Warren
by: Lake

Sorry no. Your accountant probably wants you to file quarterly to make the remittance burden less onerous and remove the temptation to spend the monies collected in trust.

You cannot just stop remitting. You need to cancel your GST account with CRA.

Feb 15, 2016
Who's making the sale?
by: Anonymous

So we're looking into selling products for a company where we make our profit from the discount we get for volume of purchase. We're supposed to charge tax for what we sell to customers and we forward that amount to the company. Under this set up, where the larger company is collecting the tax, do we (as the middleman) count all our sales as part of our 30k limit, or do we only count what we keep as our 30k limit? And if the former, is this some sort of way larger companies avoid paying a higher tax rate, through their smaller retailers?

Feb 15, 2016
Who's making the sale?
by: Anonymous

Sorry, a correction; we're charged the tax when we purchase and we pass that cost on to the customer. The rest of my earlier questions remain the same. We'd be considered a 'consultant' according to the company's business profile if that adds any clarification.

Mar 07, 2016
Pesonal and Business Short term Rental
by: Bill

I rent my property out for a short-term basis of less than 30 days. I own 50% of a company that rents out another property for a short-term basis. The company is GST registered but I am not as my personal property is not expected to exceed $30,000 in rental revenue. Is that OK or should I register for GST since the combined revenue both my personal and my company's revenue exceed $30,000?

Mar 10, 2016
Bill
by: Lake

From what you've said, you have 2 separate entities which may or may not be connected.

See this CRA reference - Residential Real Property - Rentals:

http://www.cra-arc.gc.ca/E/pub/gm/19-2-2/19-2-2r-e.html


Apr 12, 2016
Sales tax on professional services in BC
by: Bogdan

Hi there, I'm sorry, I'm a little confused. If I work as a contractor and make more than 30k a year, but I don't act as a business entity (no office/employees/purchases), should I still charge 7% PST and 5% GST?

Thanks!

Apr 16, 2016
Bogdan
by: Lake

I think what you are saying is you are a sole proprietor. You have to charge GST on your sales as they are over $30,000 and you should be registered with CRA so I will assume you are.

PST is a bit more complicated to determine. See this chat ...

Real Property Contractors at http://www.bookkeeping-essentials.com/bc-pst.html#PSTagreement

Apr 16, 2016
Comment Title
by: Bogdan

Hi Lake,

Thanks for your reply.

It just doesn't make sense to me that if I'm a contractor and act exactly as an employee (come to an office, do my job), I have to pay the sales taxes. I believe I have to pay only income tax (and I have no expenses to reduce it) and that's all.

Very strange.

Are you sure there's no exceptions for cases when a contractor works exactly as an employee?

Thanks!

Apr 23, 2016
Bogdan
by: Lake

You really don't want to work exactly as an employee ... because if you are ... then you are probably an employee and not a contractor.

Contractors pay their own income tax, CPP premiums, WCB premiums, general liability insurance premiums, collect and remit sales tax, can hire employees to do the job subject to all of CRA's remittance requirements. You also get to deduct home office expenses and the list is more inclusive than an employee who has to work from an office at home ... and must keep your own set of books.

Company's contract out because it is cheaper for them. check out this chat to learn more ...

http://www.bookkeeping-essentials.com/T4A.html#subchecklist

You are taxed on net profit not gross profit.

Apr 23, 2016
Comment Title
by: Bogdan

Thanks, Lake. You're very helpful.

Oct 26, 2016
sales less than 30k . 1% credit. quick method
by: pat

for years my sales were over 30000 and i claimed an ITC of $300 (i use quick method)

this year my sales are 20000.

do i get to claim $200 ( 1% of 20000) ?

TIA

Oct 31, 2016
Pat
by: Lake

Check out the post where Quick Method is discussed. Scroll down the comments until you see the post where Gary Timmons, CPA-CA is part of the discussion.

http://www.bookkeeping-essentials.com/gst-hst-quick-method.html

Click here to add your own comments

Return to GST HST.

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