When are you required to register for GST/HST?
The Government of Canada requires that all businesses that earn more than $30,000 in revenues a year must register for GST/HST. But it often makes sense to register early.
What happens once you register for GST/HST?
After you register for GST/HST you must:
Add the percentage of GST/HST that applies to your province on all invoices; and
File GST/HST returns on a regular basis and remit the collected GST/HST amount to the government.
For example, if your business and your client are based in Ontario, then once you register for HST, your $100 invoice will have an additional tax charge of $13 to account for the 13% HST.
When you submit your GST/HST return to the Canada Revenue Agency, you declare the amount of GST/HST you collected from your customers, and deduct the amount of GST/HST you paid on your eligible purchases. If this amount is negative, you will receive a GST/HST refund.
For example, if you also buy a computer for your business for $1,000, plus HST of $130, for a total of $1,130, then your hypothetical return will be:
HST collected: $13
HST paid (input tax credit): $130
Your business will receive $117 back from the government because you paid more in HST than you received.
It's important to remember that you need to charge the sales tax applicable to where the goods or services are being consumed. So if you're based in Ontario, but you are selling a product or service in Alberta, only Alberta’s GST rate of 5% is to be charged.
Why register early for GST/HST?
As we described in the example above, if you have more expenses than revenues, you can recover the GST/HST spent on expenses (called input tax credits) and the government will reimburse you.
Also, customers expect to pay GST/HST. So when your clients receive an invoice that includes the appropriate amount of tax charged, it demonstrates that you are running a professional business.
See our article How To Register for GST/HST for detailed information on how Corporations and Sole Proprietorships can register for a GST/HST account.