Ask a new entrepreneur if they should be registering for a GST/HST number and you’ll be hard-pressed to get a confident yes or no.
More often than not, you’ll hear that they were told that they didn’t have to register until their sales hit a certain amount or that they’re just not sure.
The consequences of registering for GST/HST are fairly straight forward:
When you bill your clients or customers, you’ll add the percentage of GST/HST that applies to that province (which depends on where the service was performed or where the goods were delivered to) and remit that GST/HST amount to the government.
When you purchase goods or services from other GST/HST registrants, you’ll be able to deduct that amount, called an input tax credit, from your return.
For example, if your business is based in Ontario and you service another client in Ontario for $100, you’ll bill them $113 to account for the 13% HST. Let’s say at the same time you purchase a printer for $200 + HST or $226.
Your HST return will then reflect the following:
So you’ll be getting that $13 back from the government.
Registration can be done online using the CRA’s Business Registration Online. Once you complete the registration process, you’ll be given a GST/HST number which you will use to file your returns.
Officially, you’re supposed to register for GST/HST if your business earns more than $30,000 in revenues (not profits) in a year. Yet the CRA also allows you to voluntarily register for GST/HST before you hit this amount.
As a new business, you’ll likely be spending more than you earn in the beginning, particularly in those first few months of operations.
Registering early for GST/HST allows you to recover all the GST/HST amounts you may have spent during that time for business purposes which could translate into a lot of extra dollars in your pocket.
Charging GST/HST on your invoices also looks more professional and shows customers and clients that you run a serious business. Worried about charging them extra? You shouldn’t be – if your clients are GST/HST registrants, they’ll get that GST/HST back anyway when they file their GST/HST return.
No! You do not need to have a sales tax number in order to declare your first year-end date.
These are two different programs and if you don't cross the $30k threshold, you could theoretically declare a December 31 year end, file that year with no sales tax number and then register for sales tax later.
Remember that you can only backdate EASILY up to 30 days in the past, so if you plan on delaying this registration, there could be consequences (not getting credits back for expenses paid in a period longer than 30 days in the past).
Note that while the concept of charging and recovering GST/HST seems fairly straightforward, the rate of GST/HST that you charge can sometimes be a tad complicated. For example, while the GST/HST rate charged is generally based on where the service is performed or where the good is transferred, given the nature of many online businesses, this can be a grey area.
As well, there are a few business types that can’t register for GST/HST as well as goods and services that are exempt from GST/HST, non-taxable, or zero-rated.
If you’re not sure whether you should be registering or charging GST/HST get in touch with an accountant and make sure you do your homework to avoid any problems down the road.
Josh is the co-founder and CEO of LiveCA.