Good and services tax: consumers know they pay it, and business owners know they charge it, but do you know why? As the GST deadline approaches for many businesses, we wanted to share some GST 101: what GST is and how you, as a business owner, can calculate how much you’ll need to pay.
GST basics (Goods and services tax):
Business owners must charge GST on the sale of almost all goods and services they sell (the exceptions are discussed later). They are required to collect and remit it to the government, and that extra 5% they collect belongs to the government right from the start. It is not the business’s money.
When do you need to start collecting GST?
Sole proprietors and corporations should register for a GST number when they reach $30,000 in sales. You need a GST number before you can start collecting GST, and you must have your GST number on all your invoices. You must register for the GST account within 29 days of the end of the period in which you reached the $30,000 limit. The period they refer to is typically the previous four quarters, but it may be just the last quarter if you breached the $30,000 that quarter. In this case, you should register for GST for the next quarter.
You can voluntarily register for GST even if your sales are below the $30,000 limit. This may make sense if you are starting out and purchasing a lot of goods and services without much in sales; you could actually get all that GST refunded.
Calculating how much GST you owe
You need to track exactly how much GST you collect, and it should equal 5% of total sales. We recommend regularly transferring the GST collected (or a portion of it) to a savings account so you don’t spend it like it’s your money. Here are the two ways to calculate how much GST you need to remit to the government:
Net GST
This is the default and most common method for calculating how much GST your business owes. When you purchase goods and services for your business, you’ll also be paying GST on those bills. To calculate how much you need to remit, add up all the GST you collected during the period and subtract all the GST you paid during the period to get your net GST payable. The GST you pay on goods and services is called Input Tax Credits, or ITCs.
Quick method
Certain businesses that qualify can elect to use the quick method. With this method, you take 3.6% of sales (including GST) and remit that to the government. There are several rules and variations, but most contractors, consultants and freelancers would qualify for the quick method at 3.6%. You would still charge 5% GST on sales. This method is great for these types of service-based businesses that don’t purchase many goods and, therefore, don’t have a lot of ITCs. They can actually make a bit of a margin using the quick method.
Exemptions from GST
Some goods and services are exempt from GST (also known as “zero-rated” or “exempt”). These can be complicated, so talk to your accountant if you are unsure. This includes most healthcare items, medical devices, basic groceries, prescription drugs, farm equipment, residential rent, insurance, music classes, education, bank fees, interest, loan payments, WCB, payroll and daycare services.
Reporting periods
There are four types of GST filers:
- Annual Corporations: If your annual sales are less than $1.5 million, the filing deadline is three months after the reporting period. Corporations can choose any month of the year as their year-end. Their 12-month year would be the reporting period.
- Annual Sole Proprietors: The filing deadline is June 15, but the payment deadline is April 30.
- Quarterly: If your sales are between $1.5 million and $6 million, you must file quarterly. The filing deadline is one month after the reporting period.
- Monthly: If your sales are over $6 million, the filing deadline is one month after the reporting period.
How to register for a GST account
We recommend registering online. Here’s the link to the online form:
The info required to register
- Name and social insurance number (SIN) of all owners
- Address
- Date of birth
- Business name
- Business number (if the business has one, if not, you will get one when you register)
- Type of business or organization (for example sole proprietor, partnership, corporation, registered charity)
- Description of major business activity
If you have just incorporated or are in the process of setting up your business, talk to your accountant about what year-end is best for you. Be sure to select an annual filer, even if you would like to do it quarterly.
Instalments
You may have to make quarterly GST payments even as an annual reporter. When you file your yearly GST and owe more than $3,000, you must make quarterly GST payments. However, you do not need to file a return quarterly.
Filing your GST return
This is done online through your CRA My Business Account. You’ll need the following pieces of information to file:
- Sales, including GST
- ITCs (aka Input Tax Credits - the GST you paid on purchases)
- Adjustments from the prior period, if any
- Instalments paid
- Reporting period (for example, Jan, 1 to Dec, 31, 2023)
- GST number
You must still file your GST returns even if there was no activity in the period.
If you have any questions about applying for a GST number or filing your GST, we can help. As a partner for small businesses, we’re here to support you with everything from bookkeeping and accounting to GST, payroll and taxes. We make everything about owning a business easier - including GST.
Our CPAs have extensive knowledge of changing tax laws, including ones related to self-employed business owners, freelancers, tradespeople, consultants and professionals. We provide bookkeeping and tax services to small business owners in Okotoks and Calgary, including deductions, write-offs, expenses, tax returns, GST filing and more. Contact us here.
Read more about Corporate Tax topics that may be helpful to you and your small business.
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