When to Charge GST/HST

by Holly
(Edmonton, Alberta, Canada)

When to Charge GST/HST Can Be Puzzling!

When to Charge GST/HST Can Be Puzzling!

When to Charge GST/HST Can Be Puzzling! Take CRA's Questionnaire - Should you register for a GST/HST account?

I am a sales estimator sub-contractor. I've been invoicing my boss for my work this current year. I have made over the $30,000 mark and I have obtained my G.S.T. number.

Today I go to invoice my boss on the GST owed to me from him. He tells me that his accountant has advised him that he does not have to pay me GST on the first $30,000. He said he will only pay me on the remainder after the $30,000.

I thought it was optional if "I" wanted to charge GST before $30,000. So my question is: Does he have the choice to not pay me on the first $30,000? Is it up to him? Or can I bill him for the full amount of GST which is approximately $1650.00?



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Hi Holly,

Hmm a couple things aren't making sense here for me.

First, if you are an independent, self-employed sub-contractor, any work you do is for clients not bosses. You are your own boss. If you have only one client, you may not meet CRA's criteria for being an independent contractor and may in fact be an employee.

Second, while registering for GST/HST is voluntary prior to earning $30,000, you cannot "backbill" GST. You can only charge GST on sales ... and claim ITCs on purchases ... from the date you became a GST/HST registrant. Once you ARE a GST/HST registrant, you must collect GST/HST ... it is NOT optional.

Third, GST/HST is a neutral tax to registered businesses. However, if your client pays GST/HST on amounts that pertain to a non-GST/HST registration period, he will NOT be eligible to claim the ITC ... meaning the sales tax would not be neutral to him.

I hope my pointers help you answer your questions. If you are still confused about anything, please post back here using the "comments" link below.








P.S. I would like to remind you there is a difference between information and advice. The general information provided in this post or on my site should not be construed as advice. You should not act or rely on this information without engaging professional advice specific to your situation prior to using this site content for any reason whatsoever.

Comments for When to Charge GST/HST

Click here to add your own comments

Sep 19, 2012
When Do I Charge GST?
by: Chris, Alberta

Hi there,

I find your website very helpful but it's a lot to take in when first starting.

I am just begining to start my business as a sole proprietorship in Alberta. For the first year I don't think I will meet/exceed $30 thousand in sales, so I'm going to go without the GST# for now.

Do I still have to charge GST on every sale of service so I can give it to the government at the end of the year?

Thanks.



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Hi Chris,

Only GST/HST registrants are authorized to collect GST/HST. If you choose not to register when it is not mandatory (under the $30 thousand threshold), then you do no charge GST/HST.

You will also NOT be eligible to claim your input tax credits.

CRA has this great new questionnaire on their website at www.cra-arc.gc.ca> Businesses> GST/HST> Registering an account> Should you register for a GST.HST account?

It may worth your while to take the quiz just to make sure you have made the right choice.


Sep 19, 2012
Do I Have To Charge HST?
by: Jonathan, Burlington, ON Canada

Last year I was a sole proprietor. I had income above $30,000 and charged HST on all services.

This year I am a full time employee without any outside income until right now. I just got a one off project for a price of $18,000. I am wondering if I have to charge HST on it

I will have no other income this year (outside of my employment income). I do have a GST/HST number and did file last year.

It would assist if I did not have to charge HST but I wonder if that is going to cause me issues when I file at the end of the year.



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Hi Jonathan,

If you did not cancel your GST/HST account, I am sorry to tell you that you still have to charge HST on your self-employment income.

Here's the general rule ... all GST/HST registrants have to collect sales tax on all self employment income.

Mar 12, 2014
Hairdresser
by: Fran

Hello. I am a hairdresser in Ontario. I work on 50/50 commission. At the end of the day we total our day of services, subtract off HST and then divide in half for my total and employer's total.

My question is: should the employer be taking off the HST on my half of pay? I am also taxed with the usual CPP, EI and both income taxes on my half of pay. Is there anyway I can be refunded for the HST or is this the correct method at a hair salon?

Mar 15, 2014
Re: Jonathan
by: Anonymous

Regarding Jonathan's question. I'm in same situation except I cancelled my HST. How do I deal with HST?



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If you cancelled your HST account with CRA and are below the $30,000 then you no longer have to charge HST … in fact you are no longer allowed to charge HST. It also means you are not allowed to claim input tax credits.

Mar 15, 2014
Hairdresser
by: Lake

Hey Fran,

If you were a self employed hairdresser, CRA has special rules … see cra-arc.gc.ca/E/pub/tg/t4001/t4001-e.html#P1282_133973 .

As you are an employee, your employer has to deduct CPP contributions, EI premiums, and income tax as you would for any regular employees. But you know this already.

HST on all sales is collected in trust and remitted to CRA. Your employer does not get to "keep" these monies. S/he files a report to CRA on a monthly, quarterly or annual basis and remits all the HST collected net of any input tax credits.

If you want the responsibility of collecting, reporting and remitting HST on your sales, you would need to change your employment structure arrangement to be that of self-employed.


May 16, 2014
Marketing contractor
by: selena

Hi...as a contractor, I will be making less than $30000 this year. I know it's not mandatory for register for HST, but I would like to know what is best in my interest, to charge or not? and what benefits will I get in doing or not doing so?

Much appreciated!



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Hey Selena,

Check out this chat on the topic and then you decide what's best for your business. Personally I see more advantages to registering than not but then I also will not participate in "under the table" transactions either.

GST/HST Voluntary Registration.

I also chat about it here.


Jun 10, 2014
Can't find the information I am looking for.
by: Joel.

Hello,

I have been offered a job in a work from home position, they mentioned me requiring a GST number for tax purposes.

They have also indicated I am responsible for my own taxes and reporting yearly.

Due to extenuating circumstances I am awaiting an appointment to file my taxes late, and due to a problem with the person who did my taxes last year I am still paying off a debt.

Is the GST number something I will be required to provide the employer, contractor or what have you. Or is this something that once I have settled all financial things with the CRA in the coming months I can take care of?

I am concerned not having the GST number could cost me the job to begin with and its a really awesome job.

Thank you.



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Normally you would only need a GST number if you had $30,000 plus in sales. However that would apply only if you were an independent contractor and/or self-employed. You do have the option of registering voluntarily prior to meeting the threshold.

You need to read up on the rules of an employee vs. a contractor. It would be pretty hard to substantiate if the work from home position was your only customer/client.

Read more about the criteria you must meet here.

Jul 31, 2014
GST on subcontracted/subtraded work
by: Anonymous

Great posting. I'm a general contractor (GC) with a couple of employees, and I also get subtrades to do some of the work. Do I charge my client GST on the subtrade's invoice? Some of my subtrades have charged me GST, and some have not.



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I guess it depends on your contract and the conditions you set around pricing? Are you getting reimbursed for the sub trades or are you passing on the invoices to be paid directly by customer? Are you billing at a mark-up or at cost?

The general rule is if you are are a GST Registrant, you must charge GST on your invoices. Any GST you pay will be claimed as an input tax credit, making the GST neutral to you.

Aug 08, 2014
Assessments on a Tax Extra or Tax Included Basis
by: Lake

The CRA URL below discusses how CRA assesses you during an audit for GST/HST that should have been charged on an invoice but wasn't.

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

This CRA ruling states that it is a case-by-case decision. CRA will look at your invoicing practices, industry practices and supporting documentation such as a contract, invoice or sales agreement.

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".

Aug 21, 2014
Sub contractor
by: Anonymous

I am opening my own business as a consultant/manager for construction projects in Ontario.

How does the HST work with me?

Do I charge my clients?

Do I then remit that amount to the CRA?

Aug 21, 2014
Construction Subcontracting in Ontario
by: Lake

You have some research to do so you get it right from the start. It will save you so many headaches if you the take the time up front to learn your government compliance requirements.

I'd start with my GST/HST guide keeping in mind that the construction industry has some special reporting requirements ...

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

You'll also want to understand why skimming is not a great idea ...

http://www.bookkeeping-essentials.com/good-bookkeeping.html#skim

Oct 15, 2014
HST on services rendered
by: contractor G

My husband runs his own renovation business, and has for the last ten years. He has a GST/HST number and has filed with the CRA quarterly for as many years. When starting the business, I read all that I could on info about small businesses, and how to file the quarterly returns.

I have now been told by a "friend" that I have not been charging the customers properly when invoicing them. I have always charged customers the labour (provided by my husband) and then charged 13% on his labour and then added materials purchased for the customer which includes the HST for a total sum.

Now this "friend" is telling me that I should be charging the labour plus the materials (that has the HST added) and then adding the HST at the bottom total; to which I replied that the customer would then be charged too much because I would be charging HST on materials that have already been charged HST.

Can you please tell me the proper way to bill a customer, when a service has been done, and materials have been purchased for the customer. Thanks

Oct 18, 2014
How to Invoice Materials Purchased For Customer Job
by: Lake

The problem with billing the way you have is that if your customers are businesses that are GST/HST registered, they will not be able to claim their input tax credits (ITCs) on the materials unless you have a notation on your invoice stating the amount of HST included in the amount.

What I normally do is bill the materials amount before tax and let the software calculate the tax which then shows ups the invoice ... so anyone who claims ITCs or tax rebates has the information they need to do so.

I have chatted briefly on how to present tax on your invoices. Click on the link to see your three options. (If the link isn't showing, from the menu bar, go to The Quick Reference> The Current News. Once there, select HST News for backwork. On the picture index, select the article that says "invoice presentation rules".)

Oct 20, 2014
Should contractor always charge the HST?
by: George, Toronto

Hello,

A contractor is doing a big job, 70K plus but he is not charging any HST.

Would the contractor or the client get in trouble with CRA?

I'm not sure if the contractor is registered for the HST.

Oct 20, 2014
Invoicing Materials
by: Contractor G

Thanks for your help...

My husband's business is strictly residential, so I do not believe that the customer would have a need for the ITC's...

I just wanted to verify that the way that I was billing the customer was correct, and that I would not have a problem with the CRA.

Oct 20, 2014
Contractor G
by: Lake

Just to be on the right side of CRA, I'd have an footnote saying materials include HST and state the tax amount included. It is option 3 on the invoice presentations options.

http://www.bookkeeping-essentials.com/harmonized-sales-tax.html#choice

Oct 20, 2014
George
by: Lake

As I understand it, when the CRA eventually audits him or someone tips CRA about him, the business will owe the GST on all sales it should have been charged on.

It is the business's responsibility to register for GST/HST once the $30,000 threshold has been met. A variety of penalties and interest charges could result from not registering and not collecting the appropriate sales tax.

See the post above titled "Assessments on a Tax Extra or Tax Included Basis".

Oct 24, 2014
Self Employed Co-adventurer
by: Sam

I run a tattoo shop with another individual. We are considered self-employed and share the expenses only. She collects HST because she is required, and at this point I am not required.

We also have two other's in the shop who are considered self-employed and who are also not yet required to register for HST. My co-adventurer and I take a 50% cut of their earnings and share it to cover our expenses for supplies and usage of the space.

My question is, since I do not charge HST to my clients and she does, and we share the 50% we get from the other two, are they required to charge HST on her behalf? If so, are they required to charge HST on the full amount of their service or only on the percentage they give to her? Or does she herself have to subtract the HST from her cut?

Oct 24, 2014
Sam
by: Lake

You might want to consider getting a ruling from CRA. See GST/HST rulings and interpretations or call 1-800-959-8287.

I would think if you are all self-employed, you should all be operating your business as such. To me, this means you all need to do the appropriate invoicing, have written contracts in place laying out the relationship, and ensure you have source documents to backup your billings.

When you are having trouble deciding what to do, ask yourself what you would do if this was an arms-lenthg transaction. That most likely will be the correct way to handle the transaction (assuming you are handling your "normal" transactions correctly).

As a general rule, only the GST/HST registrant collects this tax.

Nov 11, 2014
GST question
by: Bora

Hello,

Thank you for your website. I have been through looking at all sorts of website but cannot quite find the answer to my question.

I am a self proprietor and sell products in Canada on behalf of several European companies.

I am a GST registrant here in Canada.

I want to invoice the clients in Europe based on a commission on sales, but they expect me to NOT charge GST as B2B invoicing is usually without GST (in Europe).

Do I have to charge GST or not, as we are both business?

Thanks

Nov 13, 2014
Bora - Foreign Sales
by: Lake

It is my understanding that non-resident sales attract GST/HST at a zero rate (0%). If you are in a province that attracts provincial sales tax, PST may or may not apply.

I chat a bit about this topic here ...

You may want to ask CRA for a ruling.

Jan 07, 2015
HST Ontario Went over $30,000 for first time
by: Scott

TWO questions:

1. I have not registered for HST as our business has never gone over $30,000 in a year. What happens when it goes over $30,000 for the first time, but we didn't know it would until the year was ended? Will we be charged HST retroactively by CRA? Or we simply be required to register for HST from here on in?

2. What if we have more than one business? One is a sole proprietorship, and one is a partnership with someone else (outside the family)? Is there a difference if each business makes $16,000, for example, so the total is over $30,000, but not each individual one?

THANKS for any help.

Jan 08, 2015
Scott
by: Lake

1. CRA RC4022 publication states that "if your revenues are over the threshold amount in one calendar quarter, you are considered a registrant and must collect the GST/HST on the supply that made you go over the threshold amount. Your effective date of registration is the day of the supply that made you go over the threshold amount. You must register within 29 days from that day."

It goes on further to explain in an example that "you have to charge GST/HST on the [...] sale that made you exceed the $30,000 limit, even if you are not yet registered."

2. RC4022 defines a small supplier as a sole proprietor (or partnership or corporation) "and your TOTAL revenues from taxable supplies (before expenses) from ALL of your businesses [my emphasis] are $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters".

"Total revenues from taxable supplies means your worldwide revenues from your supplies of property and services that are subject to the GST/HST (including zero-rated supplies), or that would be subject to the tax if supplied in Canada."

RC4022 then goes on to explain the definition of being associated with another person. You can read about it here:

http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-e.html#P377_24882

Mar 11, 2015
Paying GST
by: Anonymous

When a vendor invoices every month and they don't have a GST number but now it will be over $30,000.00 do I pay the GST on any amounts over the $30 thousand?

Thank You

Mar 11, 2015
Paying GST
by: Lake

See my chat on mandatory registration criteria:

http://www.bookkeeping-essentials.com/GST-registration.html#threshold

Mar 12, 2015
Need help.
by: Anonymous

I've been working for a guy who contracts off of a company in construction. I've been with them for 7 years. He is the only one I've worked for. I think I'm an employee.

He pays me as a subcontractor and I do my own taxes. I make around $50,000 a year. I've asked him to pay me as a employee but he doesn't want to. He pays me hourly and never asks for invoiced. Since, like I said, I go there every day all year full-time. Should he be paying me GST? Or as a employee? If he got audited would he be in trouble for all this or me? Thank you.

Mar 13, 2015
Contracter vs Employee
by: Lake

I've chatted about CRA's subcontractor checklist here:

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

From the information you've provided, I'm fairly certain CAR would classify you as an employee. He is taking a risk misclassifying you as a contractor. The penalties to the employer are severe and discussed in my chat.

Mar 29, 2015
Advise Please
by: Dna

Hi ,
I've been working since 2009 as an independent contractor and make over $30k/year and never charged GST/HST to my clients , and therefore never paid them.

This week I received a demand of inscription for GST/HST , stating they have noticed I've been engaged in commercial activities with $30k+ and have no tax account.

I will apply and open the account and start charging my clients for taxes and pay them, but what will happen for the past?

Will I get charged retroactively for all those years? if yes, will there be interest and penalties added?

And last question; until when would I be allowed to pay for 2014 GST/HST?

Please help me.

Mar 30, 2015
DNA
by: Lake

As of February 2014, the CRA is also allowed to automatically register your business 60 days after official notification if you haven't done so.

More bad news for you ... because you failed to register after meeting the $30K threshold, you lose your ITCs prior to the official registration date!

The Canadian Tax Foundation August 2014 blog by Jenny Siu says, "It is unclear whether the CRA will issue an assessment for unpaid tax at the same time that it sends the notice of intent, or whether it will delay the assessment until the GST/HST registration number has been assigned."

Read more here: http://www.ctf.ca/ctfweb/EN/Newsletters/Canadian_Tax_Focus/2014/3/140312.aspx

KPMG's Global Indirect Tax branch answers the question "Are there penalties for not registering ...?" in their publication "Canada - Country VAT/GST Essentials".

"Penalties and interest, may be charged for failing to register for GST/HST at the required time. These penalties and interest are generally calculated based on the net tax due for the period commencing when your business should have been registered. The net tax is the tax that should have been charged on supplies, less the input tax credits that your business would have been entitled to recover. There is also a specific monetary penalty imposed for failure to file a document."

I don't give individual advice on this website ... I only provide general information that may or may not be relevant to your circumstances. You really should visit a certified accountant to discuss your situation. S/he will be able to provide advice specific to your situation. Of course they won't be able to dig you out of all the do-do you stepped in all by yourself by failing to register ... but maybe they can give you some options.

Mar 30, 2015
KPMG Publication
by: Lake

KPMG's publication "Canada- Country VAT/GST Essentials" authored by their Global Indirect Tax branch is a good read for non-Canadian entities doing business in Canada.

You can read it here:

http://www.kpmg.com/Global/en/services/Tax/GlobalIndirectTax/Documents/vat-gst-essentials-2012/canada-2011-vat-gst-essentials.pdf

Apr 26, 2015
Sub Trades
by: Renee

Hello

We are a service company and hired a sub trade to do work for our client. This sub trade does not charge HST as they fall under the $30000 exemption. As we paid them, do we have to charge the HST to our customer when submitting invoice for payment, as we do not fall under the exemption.

Apr 29, 2015
Renee
by: Lake

Check out this forum posting (see the comments section). It should answer your question.

http://www.bookkeeping-essentials.com/hst-and-reimbursable-expenses.html

General rule as I understand it is if you are a GST/HST registrant, you would charge GST/HST on your sales. For reimbursable expenses (at cost i.e. you don't mark up), I would exclude the sales tax paid in the expense so you can apply the same tax rate. Therefore, if you are just looking for reimbursement you could apply the "exempt" sales tax rate to the sub trade reimbursement.

May 06, 2015
Do I have to pay GST for a money back?
by: Vash

Hi There,

I am a new and beginner subcontractor and I'm kind of confuse. I'm working at this one company and they happened to gave me a wrong amount of payment. So when I noticed that, I was about to give them the money back but then they gave me an invoice asking for that amount with a GST. Do I have to give them the amount plus the GST they're asking? hoping you could help me. Thank you

May 10, 2015
Vash
by: Lake

Sorry. I'm confused and don't understand your situation. If you are the subcontractor for a company, you invoice the company. They don't invoice you.

Whether you charge them GST depends on your sales volume not their sales volume.

Does that help?

May 10, 2015
Payment was more than whats invoiced
by: Vash

Yes, I invoiced them for all the jobs I did for them. But the last payment they gave me was more than what was on my invoice. I was going to give it back to them in cash but they gave me an invoice for it with a GST. Now I'm wondering if they really have to do that since I am just going to give back the money to them. And besides it's their fault that they didn't pay attention to the amount on my invoice.

May 12, 2015
Vash
by: Lake

You should speak with them. Presumably they don't know that you are not registered for GST/HST ... or they think you should be by the amount they are paying you.

I would consider cashing their cheque and leaving a credit on their account then work out the details so you don't run short on cash flow. Depending on how your chat goes, you could issue a refund for the difference.

You must register for GST/HST and charge it if you have more than $30,000 in sales.

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