If you’ve just started a business, or your side business has been taking off, you may be required to register and charge GST/HST on your sales. In general, your business will be required to charge GST/HST on the sale of most taxable goods, services, and leases, where revenue from these activities exceeds $30,000 over four consecutive calendar quarters.
Note that this requirement for GST/HST is based on consecutive calendar quarters, as opposed to a complete fiscal year. For example, if your business earned $25k in revenue in both fiscal 2019 and fiscal 2020, it might not seem like you will be required to register. However, if $20k of your 2019 revenue was earned in the last two quarters of the 2019 fiscal year, and $10k of your 2020 revenue was earned in the first two quarters of the 2020 fiscal year, then you will have met the requirement of $30k revenue over four consecutive quarters. In this situation, your business would be required to register, despite never hitting $30k in sales in a single fiscal year.
The point at which you need to register for GST/HST depends on how quickly your business reaches this $30k sales mark:
- If you reach $30k in sales in a single calendar quarter, you will need to register for GST/HST on the date that your business hits $30k in sales. Your business must charge GST/HST starting with the particular sale that caused revenue to exceed $30k in that quarter.
- If you reach $30k in sales over four consecutive calendar quarters, then you will need to register for GST/HST on the first day of the month following the month in which your business meet this $30k milestone.
If your business is required to charge GST/HST, then you will generally be able to claim input tax credits (ITCs) on GST/HST paid by the business. ITCs are dollar for dollar credits on GST/HST paid, and directly reduce the amount of GST/HST owing on your returns.
ITCs can be claimed by businesses that produce taxable supplies (sales that are subject to GST/HST), or zero-rated supplies (certain sales in which GST/HST isn’t charged, but enable the business to claim ITCs). Lastly, if your business provides exempt supplies (sales in which GST/HST isn’t applicable), you will not be able to claim ITCs. Be sure to consult with your tax advisor as to whether your products and services are applicable for GST/HST.
Lastly, it may be advantageous to register your business for GST/HST even if you’re under the $30k sales requirement, in the event you can claim ITCs. For example, if your business requires you to purchase PP&E up front or incur large start up costs, you could receive GST/HST refunds for the any GST/HST paid on these expenditures. As these are credited dollar for dollar, ITCs provide significantly more value than claiming the GST/HST paid as a tax deduction at the business’s marginal tax rate.
Article by Kyle Singbeil, CPA
Dated December 10, 2020
This article has been prepared for informational purposes only, and is not intended to serve as tax, accounting, legal, or financial advice. Before engaging in financial transactions, you should consult your own tax, accounting, legal, or financial advisors.