Your Business and GST in Canada

Most business owners ponder whether or not they need to collect GST or not. It is a tax on almost all goods and services in Canada. For the purposes of this article, we will assume it is all goods and services. Do you need to collect GST?

The collection and remittance of GST is mandatory for all businesses that receive $30,000 or more in revenue annually. The most common pitfall is that most businesses don’t realize that they owe $0.00 GST on revenue up to and including $29,999.99, but would owe 5% if they received a penny more. That’s $1,500 on $30,000!

There is a way to minimize this debt:
1.      Register for a GST number through CRA (Canada Revenue Agency)
2.      Collect 5% GST from each qualifying sale
3.      Keep track of GST Input Tax Credits
4.      Prepare GST remittance form – you might get a refund of GST!

How does that work? A refund on tax collected?!
GST is a flow-through tax. That is, any monies collected are remitted to the government. The business stands to gain only by claiming what are known as “Input Tax Credits” or “ITC” on their GST remittance forms. An input tax credit is the tax paid by the business to carry on business activities. This may be the GST paid on fuel to get to a client’s office or the GST paid on a business lunch. Tally the GST of all receipts paid for the business, subtract this total from the GST collected and you are left with a positive or negative number. A positive number is the total that the business owes CRA, and a negative number is a refund.

Example:
GST REMITTANCE FORM      

GST Collected      $100
Input Tax Credits      $101
Total (Refund)      $(1)
      
 
Example:
GST REMITTANCE FORM      
      
GST Collected      $101
Input Tax Credits      $100
Total owing      $1
      

These examples illustrate the need to consistently and accurately collect GST. It just may benefit your business in the end!

I am a tax professional, and this article is representative of the prevailing regulations in Canada at the time this article was published.  While I am a professional, you are not my client, and so this should not be considered professional advice. Remember, though, that these rules can vary widely by jurisdiction, and that from year to year tax rules can change.  Therefore, you should always research whether or not you are eligible for these or other deductions/credits.  When in doubt, consult a local tax professional.