Photo by Thgusstavo Santana via Pexels
As a business owner/operator, understanding the Goods and Services Tax (GST) and Harmonized Sales Tax (HST) is essential for compliance, accurate accounting, and effective business planning.
However, all businesses also need specific guidance, so consulting a Toronto GST and HST expert is necessary to ensure your future success. Their detailed knowledge and experience in managing these, and your income tax obligations, ensure your business not only complies with regulations but also optimizes your tax strategies.
What are GST and HST?
The GST is a federal tax applied at a rate of 5 per cent on most goods and services sold or provided in Canada. In some provinces, however, the GST is combined with the provincial sales tax to form the HST, which is collected by the federal government. The HST rate varies depending on the province, from 13 per cent in Ontario to 15 per cent in Atlantic Canada, for example.
Who Needs to Register for GST/HST?
Currently, businesses with a taxable revenue exceeding $30,000 in any consecutive 12-month period must register for GST/HST. This threshold applies to most types of goods and services, but there are exceptions for certain types of organizations and services. Find out the latest information here to confirm whether or not you need to register for GST/HST. Small suppliers who earn less than this threshold may choose to register voluntarily, which can be advantageous for claiming input tax credits.
Input Tax Credits (ITCs)
One of the key components of the GST/HST system is the ability for businesses to claim input tax credits. ITCs allow businesses to recover the GST/HST paid or payable on purchases and expenses related to their commercial activities. By doing so, the CRA ensures that the added costs otherwise associated with business purchases are eventually passed on to end consumers who can’t claim ITCs. It’s important to note that ITCs can only be claimed on reasonable operational expenses – another example of what you need to ask a Canadian tax lawyer.
Collecting and Remitting GST/HST
Once registered for GST/HST, businesses are responsible for collecting the tax on taxable sales to customers in Canada. The collected tax must be remitted to the Canada Revenue Agency (CRA), typically on a monthly, quarterly, or annual basis, depending on your sales and preferences.
Filing GST/HST Returns
GST/HST returns require the owner/accountant to calculate the total GST/HST collected from customers and the ITCs claimed. The difference between these amounts is remitted to the CRA. If the ITCs exceed the collected tax, your business may receive a refund.
GST/HST Considerations
Understanding the various categories of goods and services and their tax implications can be challenging. For example, goods and services for taxation are classified into three categories: taxable, zero-rated, and exempt.
Taxable supplies, which include most goods and services like commercial property sales and various personal services, are subject to GST/HST. Businesses can claim Input Tax Credits for these. Zero-rated supplies, like basic groceries and certain medical items, are taxed at 0 per cent, allowing you to claim ITCs without collecting GST/HST. Exempt supplies, such as residential rentals and certain medical services, are not subject to GST/HST, and businesses cannot claim ITCs for them. It’s fundamental to know the intricacies of these categories, their applicability to specific goods and services, and to stay updated with the government’s latest tax regulations.
Additionally, businesses operating in multiple provinces must navigate the different HST rates and rules. Regularly updating accounting practices to align with changes in GST/HST regulations is critical.
Seeking Professional Advice
Due to these complexities and others, seeking advice from a tax expert is part of every successful business’s regular operations. A Toronto GST and HST expert, for instance, who is also an LSO-licensed lawyer, can provide tailored advice, help you navigate specific scenarios, optimize your tax minimization strategies, and ensure all of your legal compliance requirements are met.
The Bottom Line
By staying informed, maintaining accurate records, and seeking professional advice, businesses can effectively handle all their tax obligations, ensuring compliance and securing their future financial health.
This content is a joint venture between our publication and our partner. We do not endorse any product or service in the article.
