GST – which stands for Goods and Sales Tax – is a 5 percent tax on goods and services that is produced by businesses and passed along to the consumer. In this article, we’ll step you through the ins and outs of GST, highlighting its key aspects, nuances, and regulations.
What is GST?
GST was adopted in 1991, replacing the manufacturers’ sales tax, and is applied to all territories and provinces across the country. Some provinces have incorporated GST with their provincial sales tax. This is known as harmonized sales tax, also referred to as HST. Newfoundland and Labrador, Nova Scotia, Ontario, New Brunswick, and Prince Edward Island participate with the federal government using HST. The remaining provinces and territories charge GST separate from the provincial sales tax that might be charged.
What is ITC?
ITC stands for Input Tax Credit. When your business is registered for GST, you can recover the GST you’ve paid associated with your business activities. These are known as Input Tax Credits. To make these claims, you’ll need to submit the relevant documentation, such as receipts and invoices that show the GST amount and your GST registration number.
Do I Need to Register My Business for GST?
If your business’s cumulative revenue exceeds $30,000 within the previous 12 months, you are required by law to register your business for GST. Some small businesses prefer to voluntarily register for GST regardless of their annual sales being less than $30,000. You can recover your ITCs on business purchases and start-up costs. This is money back in your pocket. It’s important to note that if you’ve registered for GST and are under the $30,000 threshold, you’re still required to charge, collect, and remit GST on products and services sold. If you’d like more detailed information on whether or not you’re required to register for GST, see the CRA’s guide.
Registering for GST
There are three ways to register:
- By telephone
- By mail/fax
We prefer the online method, so we’ll start there! You can register online through the CRA website. Registration is secure, convenient, and straightforward. You must have a valid social insurance number (SIN) to register, and you’ll be asked to provide your own personal information (date of birth, full name, and postal code). If you’re registering a business, you’ll need the business name and address, type of business (e.g.: sole proprietor/corporation) as well as a description of your business’s activity.
To register by phone, call 1.800.959.5525.
To register via mail or fax, you’ll need to complete the RC1 form and fax or mail it to a tax center. Once you’ve registered for GST, the CRA will assign you a Business Identification Number (BIN). You’ll need to use this number when remitting your GST and for all dealings with the CRA. As soon as you’re registered, you must:
- Charge, collect, and remit the GST that applies to the goods and services you’ve sold
- File a GST/HST return based on your assigned reporting period and remit payment if you’re required to do so
- Stay registered for at least one year before you can cancel your registration
You can find more information on how to go about registering on the CRA website.
GST: The Importance of Proper Documentation
Keeping adequate records is very important when filing and paying GST. If you’re claiming ITCs, you’ll need to make sure you track all of your business purchases. If you’re using accounting software, it’s simple to set this up. It’s a good idea to scan all documents and file the originals somewhere safe. We recommend LedgerDocs, a great document management tool designed by the team here at LedgersOnline. If you ever need to refer back for any sort of audit, you’ll be thankful you’ve done so! Once you’ve posted all your ITCs and all the GST collected is captured, you can then calculate your return. The total amount you’ll need to pay will be the total GST collected, less the amount of ITCs for the period. If the total ITCs is more than what you collected, you’ll get a refund!
What GST Rate to Charge Customers
Now, how to know which rate to charge your customers and clients. If you’re selling or providing goods or services within your own province, the rate you will charge is fairly straightforward. You can refer to the table below to give you the rate you should use. (Please note you should still check the CRA website to make sure your services or supplies are not zero-rated): Province or Territory Current GST rate to charge
|Newfoundland and Labrador
|Prince Edward Island
If you’re selling services or goods across the country, things get a little more complicated. The rate you will charge depends on a few things:
- The type of supply
- Where the supply was made
- To whom the supply is made
You’ll find a comprehensive list on the CRA’s website of what supplies require GST to be charged and which are zero-rated. You need to take all of these factors into consideration before you choose the rate for each transaction. There are also some recently published regulations regarding digital economy businesses that you should familiarize yourself with if they apply to you. Also, take note that any sales that you make outside of Canada to foreign customers are zero-rated for GST and PST.
The GST Filing Process
You now know what rate to charge, so let’s talk about filing your return. There are three ways to file your GST return:
- In person at a participating financial institution or Post Office
- By mail to the address on the return
Let’s talk about the first option, GST filing online, as it’s the quickest and most efficient way. You’re required to file online if you aren’t a charity and have more than $1.5 million in annual taxable supplies. If you’re a builder, you’ll want to check the CRA website as there are some conditions that may require you to file online as well.
If you prefer to file in person, you can do so at participating financial institutions. You’ll need the original GST remittance form you received in the mail – they cannot process your payment without this form as the bank requires the bar code on the bottom of the return.
You can also pay GST in person at a Post Office (using cash or Debit Card). To do so, you’ll need to create a QR (Quick Response) code that contains information that allows CRA to credit your account. There is a QR code on your remittance voucher from CRA. Alternatively, you can create one by clicking on this link. Finally, posting your return in the mail is another easy option.
By When Do I Need to Submit My GST Return?
The due date of your GST return will be determined by your reporting period. The due date of the filing and the payment will always be shown on your return.
- If you’re a monthly filer, your return is due one month after the reporting period.
- Quarterly filers need to remit and pay one month after the reporting period.
- For annual filers, it isn’t quite as straightforward. If you have a December 31 year-end, your filing deadline is June 15, but your payment is due April 30. For all other year-ends, the filing and payment deadline is three months after the fiscal year-end.
Now that we’ve explored GST, how to register your business for it, and file your returns, let’s turn our attention to PST. PST stands for Provincial Sales Tax. BC businesses operating in a commercial space while also selling taxable goods or providing taxable services should register for PST. Regardless of annual revenues, these businesses must register to collect PST on the sale or lease of any taxable services, software, or goods in the ordinary course of business in BC. With that said, small sellers operating home-based businesses can be exempt from this rule. A small seller must register for PST only if their revenues exceed $10,000 annually.
Products such as food for human consumption, books, newspapers, children’s clothing, bicycles, and prescription medications are exemptions available to all purchasers. There are also several other exemptions for goods and services that pertain to specific purchasers.
How to Register for PST
Registering online is generally the quickest way to register, and in most cases, you’ll receive your PST number the next business day. With that said, you can also register in person or by mail/fax. To register online or to find more information on the registration process, view the BC Government’s website.
How to Complete a PST Return
If you have registered online using the eTaxBC online system, you can file your PST returns and pay taxes online. If you haven’t signed up online, you’ll receive a paper PST return by mail at the end of each reporting month. Your completed PST return and payment must be received on or before the last day of the month following the end of the reporting period.
How to Report and Pay PST
Now that you have registered and received your PST number, you can now pay the tax you have collected on your sales and the PST you owe on the purchases that have allowed you to run your business.
There are four ways to do this:
- Online using eTaxBC
- Through your bank
- At a government office
- Via mail or courier
Need Additional Help?
For many business owners, GST can seem complex and confusing. We trust that this guide has provided you with some clarity on this topic. That said, if you’d like some hands-on guidance and support in registering for GST and preparing and filing your return, LedgersOnline is here to help. Our team of online accountants is familiar with the process and nuances of GST and would welcome the opportunity to assist. Don’t let GST matters give you sleepless nights. Get in touch with one of our consultants today to schedule a call.
Please bear in mind that although this information comprises federal and provincial/territorial sources, it’s subject to change and may not be comprehensive. Therefore, we don’t warrant the accuracy of this information and advise you to consult with the Canada Revenue Agency, your provincial/territorial government, and/or a tax professional to confirm all dates and deadlines.