As a Canadian small-business owner, it is important to know what and when to charge your customers in terms of sales tax. The three types you’ll run into most frequently are the good and services tax, provincial sales tax, and Quebec sales tax. There are many ins and outs of these specific taxes to keep in mind as you move forward with your company and determine what tax to use with specific clients.
GST includes real and personal property
The federal tax of Canada is the GST, which applies to almost all goods and services within the country. This tax is managed by the Canada Revenue Agency and results in a 5 percent charge on supplies purchased in Canada unless they are zero-rated or exempt.
PST is dependent on region
This retail sales tax is charged when a good or service is purchased or acquired and is mandated by the provincial governments. The PST applies to both taxable and zero-rated items and is paid to the CRA.
For provinces including British Columbia, Manitoba, Quebec, and Saskatchewan, small businesses are required to charge customers the PST, as well as 5 percent GST.
HST is a Combo
Some provinces have chosen to participate in the HST, which pairs the GST with the PST to create one tax overall. These regions include New Brunswick, Prince Edward Island, Nova Scotia, Newfoundland, Labrador, and Ontario. Therefore, if your small business resides in one of these areas, you will collect a HST rate that ranges from 13-15 percent and pay it to the CRA.
What to tax
Once you understand the different kinds of taxes, it’s important to know which items fall under which bracket. Taxable goods and services include universities, tour operators and packages, telecommunication channels, facilities and services, and tribal councils, among others. The GST applies to zero-rated items including medical devices, groceries, livestock and fishery, and exports but results in a 0 percent tax charge. Last are products exempt from tax, such as most health, medical, dental, educational, and legal services, to name a few.
Small-business owners can claim input tax credits on zero-rated items, which is a way to recover GST or HST that you owe or pay on expenses or purchases related to your company.
If your company falls under any of the zero-rated or taxable industries, you will need to charge your customers either the solo GST or a HST at the time of purchase depending on what province your business resides in.
How to tax
To collect taxes, a small business has to create a GST/HST account with the CRA. However, there is a difference between a small supplier and one that needs to register for a tax account. A small supplier is a partnership, corporation, or sole proprietorship that has made less than $30,000 in revenue over the last four calendar quarters in a row or in any single quarter. Most small suppliers don’t have to collect the GST or HST. However, if the total gross revenue for a calendar year adds up to $30,000 or more, the business is no longer a small supplier and is required to set up an account with the CRA.
Once your small business has an account with the CRA, the agency will assign your company a reporting period, during which you file your tax returns. It is important to remember the date your business was registered with the CRA, as it determines when that reporting period will take place.
If the signup you completed with the CRA was mandatory, then the reporting period date is usually the date you starting selling taxable goods in Canada while also exceeding the small supplier limitations. For voluntary registrations, the reporting period frequently falls when your application is received by the CRA.
Quebec stands alone
The province of Quebec requires small-business owners to work with Revenu Quebec to file and collect taxes. A company address in the province, the hiring of an employee, and production and marketing activities that occur in the region are all reasons for a company’s registration.
The GST and the QST must be charged during the sale of most goods and services within the province, according to Revenu Quebec. Taxable supplies are charged 5 percent GST and 9.975 percent QST and include sales of new residential facilities, gasoline and cars, hotels, clothing, and food and beverages, among others.
Quebec small businesses are required to register with Revenu Quebec to file taxes and collect returns. This application is necessary as long as a company exceeds the limitations of a small supplier. The form for the QST is required before a business makes its first taxable sale. For the GST, a company must apply before the 30th day following the day it made its first taxable sale.
Make customers aware of the amount of tax they are being charged by providing a receipt and keep a copy for your own records. The tax rates among the provinces change over time, so it is vital for Canadian small-business owners to stay up to date on all rules and regulations regarding their companies.
Even if you are skilled at doing tax percentage calculations in your head there’s no shame in using a Canada tax calculator. You might already use an income tax calculator to manage your personal finances, the key difference with this CRA calculator is that it is intended for businesses and calculates GST, PST, QST etc. The safest bet is to use the calculator hosted by the Canada Revenue Agency so you know you are dealing with the most up to date federal and provincial tax rates.