Many of us have clear memories of the vigorous public debates over the federal government’s proposal to introduce a Goods and Services Tax (GST).
Two decades have now passed since Canada adopted the GST, and while it has become a common part of our business landscape, many organizations, particularly small businesses, may still struggle to understand their requirements to collect and remit the tax to government.
Before outlining the key things that businesses must understand, it is important to remember that many provinces have adopted a Harmonized Sales Tax (HST), where the provincial sales tax is harmonized with the GST. Specifically, many of Miller Bernstein’s clients are based in Ontario where in 2010 the GST was harmonized with the Ontario provincial sales tax to create an HST of 13%.
When businesses process their GST/HST filings, there are a few key things thy must understand.
1. Taxable, Zero-Rated or Exempt?
It’s the starting point of charging GST/HST – knowing which goods or services the tax applies to. The CRA classifies items as taxable, zero-rated or exempt.
Taxable means the good or services is subject to the GST / HST of the province in which is supplied.
Zero-rated means the business does not charge GST / HST on certain items such as basic groceries (e.g., milk, bread), health-related items such as pharmaceuticals or hearing aids, as well as export supplies or services.
Exempt refers to a small and specific group of services to which the tax does not apply – the grouping includes child care, most medical services and educational costs, just to name a few.
Businesses should consult the CRA or an accounting firm for a complete list of items which are taxable, zero-rated or exempt.
2. GST/HST Return
Businesses collect GST/HST from their customers, then remit the tax to the federal government through the Canada Revenue Agency (CRA).
This function is completed by a document called the GST/HST Return.
Usually when a business registers for GST/HST, it will be assigned a reporting period and the Canada Revenue Agency will mail you a personalized GST/HST Return for Registrants at the appropriate time.
3. The Reporting Period
How often does a business remit? The frequency of remittance depends on the length of its reporting period. The CRA prescribes the reporting period based business’s annual taxable supplies.
Most businesses are required to report quarterly. However, large businesses with over $6 million in annual taxable supplies must report monthly.
Smaller businesses under $1,500,000 in annual taxable are generally put on an annual filing frequency. However, they can elect to file either on a quarterly or monthly basis.
New GST/HST registrants with annual taxable supplies of under $1,500,000 for are automatically assigned an annual reporting period unless they choose to file more frequently.
When it comes to reporting GST/HST, there are a few key tips to understand
- First, businesses must remit on the reporting period, even if they collected no tax during that period (e.g., the remittance is zero)
- Second, you always have the option of increasing the frequency of remittance, which may be desirable if you are expecting refunds
- Finally, you can always choose to file electronically, although registrants with a threshold amount greater than $1.5 million must file their GST/HST returns electronically
4. Input Tax Credits
You often hear businesses talking about their Input Tax Credits (ITCs). It’s a key part of the GST/HST calculations.
Input Tax Credits refers to the GST/HST that the business pays on its legitimate business expenses. It’s the input to the enterprise
Every business is pays GST/HST for its own expenses, then collects GST/HST on the goods or services it provides. Please remember that not all GST/HST expenses qualify as ITCs, as items such as club memberships, while they may involve business dinners, are not eligible.
5. Electronic Filing
The CRA currently requires most businesses to file their GST/HST payments electronically. In certain cases, the CRA requires everyone to file electronically, such as:
- Businesses with greater than $1.5 million in annual taxable supplies (except for charities); or
- All registrants required to recapture ITCs for the provincial portion of the HST on certain inputs in Ontario or British Columbia; or
To find the electronic registration form, please click here or contact your accountant today.
Your Turn — Filing Your GST/HST
Have you encountered any challenges for filing your GST/HST?
What strategies did you use to address them?