When it comes to operating a business in Canada, navigating the tax landscape is essential. The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are key components that businesses must understand to stay compliant and manage their finances effectively.
Understanding GST and HST
GST is a federal sales tax that applies at a rate of five percent across the entire country. However, things get a bit more complex when we talk about HST.
HST is the result of several provinces, including Ontario, Prince Edward Island, New Brunswick, Nova Scotia, and Newfoundland and Labrador, harmonizing their Provincial Sales Tax (PST) with GST. The HST rate is 15 percent in most of these provinces, with Ontario being an exception at 13 percent.
If your business sells taxable supplies in Canada and is not considered a small supplier, you are required to register with the Canadian Revenue Agency (CRA) for a GST/HST account. Small suppliers, on the other hand, with total revenues under $30,000 in the previous four consecutive calendar quarters, are not initially required to register but can choose to do so voluntarily.
Determining Business Activity in Canada
Understanding whether your business is considered to be “carrying on business in Canada” is vital for tax purposes. Canadian-incorporated businesses are generally considered to meet this criterion.
However, for non-resident entities, a factors-based approach is used, considering factors such as asset locations, employee offices, and customer transactions.
Taxable supplies encompass goods or services that are subject to GST/HST, excluding exempt and zero-rated supplies. Exempt supplies include residential real estate rental and medical services, while zero-rated supplies are taxed at 0 percent and include exports and certain grocery and agricultural products.
Voluntary Registration Benefits
Even if your business is not required to register for GST/HST, there are compelling reasons to consider voluntary registration. One significant benefit is the ability to claim input tax credits for GST/HST paid on business-related purchases, such as utilities and office supplies. Non-resident entities can also benefit by claiming input tax credits for GST paid at the border.
Once registered, your business must routinely file GST/HST returns with the CRA. The reporting frequency depends on your revenue:
- Annual reporting for entities with revenues of $1,500,000 or less.
- Monthly reporting for entities with revenues over $6,000,000.
- Quarterly reporting for entities with revenues between $1,500,000 and $6,000,000.
Mastering GST/HST for Canadian businesses is essential for regulatory compliance and financial efficiency. Understanding the nuances of these tax systems and their implications for your business can help you make informed decisions and minimize tax liabilities.