Hi everyone! Today we're diving into the world of sales tax, we’ll talk about what HST is? What are taxable and zero-rated supplies, what are the benefits of registering for HST and how to register for HST. So, grab your calculators and let's get started!
HST stands for Harmonized Sales Tax. It is a combined tax that includes both the federal Goods and Services Tax (GST) and the provincial sales tax in certain provinces in Canada. The participating provinces that have implemented HST are Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island.
The purpose of HST is to streamline the taxation system and create a harmonized approach to sales tax collection. Instead of separate GST and provincial sales tax, businesses in these provinces collect and remit a single HST amount on taxable supplies.
It's worth noting that some goods and services may be exempt or zero-rated under HST, meaning they are not subject to the tax or are taxed at a 0% rate.
Zero-rated supplies refer to goods and services that are taxable, but the tax rate applied is 0%. This means that although tax is technically charged on these supplies, the tax amount is zero. Examples of zero-rated supplies in Canada include basic groceries, prescription drugs, certain medical devices, exports, and some agricultural products. Even though no tax is collected on these supplies, businesses can still claim input tax credits to recover the tax they paid on inputs related to zero-rated supplies.
On the other hand, exempt supplies are goods and services that are not subject to tax at all. They are fully exempt from HST or GST, meaning that no tax is charged or collected, and businesses cannot claim input tax credits for expenses related to exempt supplies. Examples of exempt supplies in Canada include most health care services provided by medical professionals, certain educational services, and some financial services like residential mortgages.
The key difference between zero-rated and exempt supplies lies in the ability to claim input tax credits. With zero-rated supplies, businesses can recover the tax paid on inputs, while with exempt supplies, no tax is collected or recoverable on inputs.
You have to register for a GST/HST account if both situations apply:
· You make taxable sales, leases, or other supplies in Canada (unless your only taxable supplies are of real property sold other than in the course of a business)
· You are not a small supplier
You are considered a small supplier by CRA if your business makes sales of less than CAD $30,000 in a single calendar quarter or over the previous four consecutive calendar quarters. It's important to note that this threshold may be subject to change, so it's advisable to check the latest information from the CRA or consult with a tax professional.
Exception: Taxi and Uber drivers must register for the GST/HST, even if their income is less than $30k.
Registrants must charge, collect and remit HST.
1st benefit: Input Tax Credits (ITCs): One of the key benefits of registering for HST is the ability to claim input tax credits. As a registered business, you can recover the HST paid on your business expenses, such as equipment, supplies, and services. This helps reduce your overall tax burden and improves your cash flow.
Example:
During your reporting period, you collected $1,000 of GST/HST from your clients. You are also eligible to claim ITCs of $800 for the GST/HST you paid on business expenses. If you have no adjustments to include on your return for the reporting period, your net tax would be $200.
2 Benefit of registering for HST: Credibility and Professionalism: Registering for HST can enhance the credibility and professionalism of your small business. It demonstrates that you are operating as a legitimate business entity and are compliant with tax regulations. This can be particularly beneficial when dealing with larger businesses or government entities that may require HST registration for procurement or contract purposes.
3. Benefit of registering for HST: Temporary cash flow benefit: There is a cash flow advantage that arises from the timing difference between collecting HST from your customers and paying HST to the government. If you collect more HST than you pay you will owe the government the net HST tax but until the reporting period is due, so you may have some cash flow relief in the meantime but ce bareful as this cash belongs to the government.
4. Benefit of registering for HST: Compliance with Regulations: Registering for HST ensures that you comply with tax regulations and avoid penalties or legal issues. You don’t have to worry about the $30,000 threashold and can be at ease that you are compliant.
Remember, it's important to consult with a tax professional or accountant to determine the specific benefits and implications of HST registration for your particular business. They can provide personalized advice based on your circumstances and help you make informed decisions regarding sales tax registration and compliance.
You can register your GST/HST on the CRA website (search CRA business registration) for free. Generally, you will need to register for your business number (BN) before you can register for a GST/HST account. You may register for a BN by using the online service at Business Registration Online (BRO). This is the quickest way to register for a BN. Once you have obtained your BN, you can then continue in the same session to register for a GST/HST account (also called an RT account)
You can also call 1-800-959-5525. The CRA will ask you the type of your business, and the estimated annual revenue. You can also choose GST/HST reporting period and year-end. The reporting period can be annual, quarterly, or monthly. The year-end can be Dec 31 or the same as the corporation year-end. Normally, we recommend our clients choose annual reporting to reduce workload.
You must file a GST/HST return even if you have:
no business transactions
no net tax to remit
Businesses need to file:
Sales less than $1.5 Million: Business can choose annual or quarterly
Sales between 1.5 Million and $6 Million = Business can choose monthly or quarterly filings
Sales of over $6 millions: Business must file monthly.
Deadlines are dependant on fiscal dates of business. For example if you have to file quarterly and your fiscal year end is Dec 31st. Then your 1st quarter filing due date is Mar 31st.
Ready to take control of your HST obligations? Schedule a free consultation today and let us help you navigate the complexities of sales tax. Our team of experts is here to answer your questions, assess your business needs, and provide tailored solutions to optimize your tax compliance. Don't miss out on potential savings and risk penalties. Take the next step towards financial peace of mind and book your free consultation now!