Small Business Tax Preparation: Understanding GST/HST

GST/HST is a sales tax that is charged on most goods or services sold or provided in Canada. As a consumer, you are probably aware of this tax, but as a small business owner, you may have a lot more questions about GST, HST and small business tax preparation. At Royer Accounting in Surrey, we handle tax preparation for many small businesses in Surrey, Langley and Abbotsford.

Can You Register for a GST/HST Number?

If you only provide exempt goods and services, you cannot register for GST/HST. For example, a daycare provider can’t register as this service is exempt from GST.

Do You Need to Register for a GST/HST Number?

If you provide taxable services and are not a small supplier, then you must register for a GST/HST number. You are considered a small supplier if you do not exceed $30,000 in gross sales in a single calendar quarter or within the previous four consecutive calendar quarters.

Your Obligations as a Registrant

Once registered, you will be required to charge the GST/HST on your taxable supplies. You will also need to complete your GST/HST return on a monthly, quarterly, or annual basis. You will also obviously have to remit the GST/HST amount due when required. The amount you remit is the amount you collected from your taxable supplies less any input tax credits (ITCs). An ITC is the GST/HST that you spend in the course of your business activities. If your ITCs are greater than what you collected you get a refund, otherwise you owe.

There are of course some exceptions. Meals and entertainment are only 50% deductible for taxes and therefore the related ITC is also limited to 50%.

Registering Voluntarily

So, if you determine that you aren’t required to register for GST, why would you?

If you are not registered for GST/HST, you still need to buy items that have this tax included. You will be able to claim this as an expense on your tax return, but you will only get back a percentage based on your income tax rate. If you are registered for GST/HST you can claim 100% of the input tax credit (ITC), aka the money you spent on GST/HST.

Also, if your primary customers are registrants themselves, they won’t see an increase in cost as this is just an ITC for them.

Downsides to Registering

If your primary customers are not registrants, the GST/HST charged will effectively raise your prices and lower consumer demand. As a small supplier, you have the option to delay and compete with lower pricing (i.e. no GST/HST).

Another issue with registering is that bookkeeping becomes more difficult. It is much easier to enter transactions right off a bank or credit card statement (of course you still need to keep the receipts); however, once you register you need to track all the GST/HST you spend and the statements will only show totals and you’ll have to refer back to the original receipts and invoices.

If you would like to learn more about small business tax preparation, please contact the Surrey accountants at Royer Accounting. Our accounting services include bookkeeping services, payroll services, tax preparation and more.