Most businesses, at least those with annual worldwide sales of more than $30,000, must register for GST/HST, but even if registration isn't mandatory for you or your business, it may be a good idea to sign up voluntarily.

Without registering, you or your business won't be able to recover GST/HST paid out on such expenses as the portion of your home and vehicle that are used for business, equipment purchases, accounting bills, postage, and parking. By registering, you can claim back GST/HST you've paid or owe on taxable goods and services. This, however, doesn't include goods or services you purchase for personal use. (See right hand box for GST/HST registration requirements.)

If you own two separate businesses that both supply taxable goods or services, they will likely be considered one business for GST/HST purposes. Also, the $30,000 includes all sales whether taxable or zero-rated.

The GST/HST registrations requirement applies to all businesses, including sole proprietorships and partnerships.

Let's take a simple example to illustrate how GST/HST works.

Say you own a manufacturing company but your hobby is playing the cello. Over the years you start playing with three other musicians and eventually you decide to start a professional quartet. You are the group's leader, negotiating and signing contracts, collecting fees and distributing the money to the other players.

In its first year, the quartet grosses $50,000. As the leader, your share comes to $20,000.

Because that is less than the $30,000 GST threshold, you might think you don't have to register for and collect GST, but you would be wrong. The quartet, as a business, has exceeded the $30,000 threshold. During that first year of professional performances, you were liable to charge GST/HST on the $20,000 of revenue that exceeded the threshold.

In subsequent years you must charge GST/HST on every dollar of performance fees. Even if there were no leader of the quartet, CRA would likely consider the quartet a partnership that would still be liable to register for and collect the tax.

Let's add a twist to the situation. You and the other musicians live close to the U.S. border and often perform in Upstate New York at small gatherings, weddings and college concert halls. During the year you gross $50,000 south of the border and $20,000 in Canada.

Although foreign customers are exempt from the tax, GST/HST registration is based on global revenue. In this case, you have grossed more than $30,000 in worldwide income so you must register for and start charging GST, on your Canadian income as soon as you exceed the threshold. You would not be liable if you had no Canadian revenue.

You may voluntarily register at any time. Voluntary early registration may be advisable, particularly when you have incurred large start-up costs or you have acquired significant capital assets to be used in your business. It allows you to claim an input tax credit (ITC) to recover GST/HST paid on these items.
Note: You may be able to recover GST/HST on personal assets contributed to the business by calculating an ITC based on the market value of the assets at the time the business started.

Once you have registered, you must keep track of all the GST/HST you collect and the GST/HST you pay. These figures have to be calculated and reported to CRA for each reporting period you set up when you register. This could be on a quarterly or annual basis.

When you fill out your GST/HST return, you note the amount your company has billed and the amount it has paid out.

If you collect more GST/HST than you paid, you remit the difference to CRA. If you pay more than you collect, you are eligible for a refund. In some cases, you may use the "simplified method" that lets you simply remit a certain percentage of your gross revenue. The actual percentage figure would depend on the industry you are in.

If you are going to wind-up your business, you may be required to pay GST/HST on any inventory or capital assets you are changing back to personal use. The GST/HST would be based on the market value of these items at the time you ceased operations.

Who Needs to Register?

A business needs to register for GST if it:

  • Makes more than $30,000 a year in gross revenue from taxable goods and services worldwide (this includes revenue from all associated persons).
  • Sells "zero-rated" goods that aren't subject to the tax (this includes commercial fishing and farming).

Generally if a business sells zero-rated services or products, it is advantageous to register as the business will always get a refund.

Some provinces have harmonized their provincial sales tax with GST to create HST. HST applies to the same base of goods and services as GST, but at a higher rate, part of which goes to the federal government and the remainder to the province.

If you are unsure about the requirements, consult your accountant.

 
For more information please contact:

HACHEM W. HALABI, D.FISC, CPA CA
Partner
Tél: 514-842-3911 poste 240

Email: