Registering for an HST Number: Benefits to Small Business Earning Less Than $30K
If you’re a business earning $30k or more in a fiscal year, then you must register for an HST number; there is no choice. But if you are a business earning less 30K you can elect to register for an HST account before you hit the $30K threshold under the small supplier rules for small businesses.
Why Register for an HST Number Early?
For businesses that incur quite a bit of expenses or is in the businesses of purchasing or selling goods, it is advisable to register for an HST number immediately upon incorporation, even before hitting the $30K threshold. Why? Because once you are a registrant, you have access to the ITC—the input tax credit system.
Every time a business incurs an expense—be it rent or paying for goods—it pays HST. The business, in turn, charges its customers HST, which must be remitted to the government. The HST that the business pays turns into an ITC, input tax credit, which is applies against the HST that it charged its customers.
Let’s look at an example. Fred’s Flowers paid $5000 in HST in the operation of his business, purchasing flowers, vases, soil, paying for rent, etc. The business, in turn, collected $15000 in HST from its customers. Fred’s Flowers remits only $10,000 in HST, pocketing the $5000 as an input tax credit, effectively being reimbursed for the HST paid previously.
Less common is the situation where a business pays more in HST then it collects from its customers. For example, if you paid $1500 in HST in operating expenses and collected $1000 in HST from your customers, you do not remit the $1000 to the government, which means that you only paid $500 in HST in the operation of your business. You do not get back the $500 that you paid.
When do you get that money back? Depends on your reporting period that you elected upon registering for an HST. At that time, a business chooses its reporting period which is either quarterly, monthly, or annually. The customers decides how often to remit, which will determine how often you will be reimbursed with the input tax credit.
While there is a benefit to small businesses to registering for an HST account even prior to earning $30,000 a year, no such benefit exists for businesses who are considering opening a payroll account before the business has even hired its first employee. If a business chooses to register for a payroll account for no other reason than getting it over with, the business will have to file every 15th of the month, using zeros in the filing to indicate that no payroll has yet been paid. In our opinion, this serves to be no more than an annoyance.
When to Register
In conclusion, opening an HST account early, while not required of businesses earning less than $30,000 a year, contains benefits in recapturing the input tax credits, while no such benefit exists in opening a payroll account prior to hiring one’s first employee.
For more on best practice tips for your small business, contact a business lawyer at Kalfa Law. You work hard for your money. We work hard for you to keep it™.
-Shira Kalfa, BA, JD, Partner and Founder
Shira Kalfa is the founding partner of Kalfa Law. Shira’s practice is focused in corporate-commercial and tax law including corporate reorganizations, corporate restructuring, mergers and acquisitions, commercial financing, secured lending and transactional law. Shira graduated from York University achieving the highest academic accolade of Summa Cum Laude in 2012. She graduated from Western Law in 2015, with a specialization in business law. Shira is licensed to practice by the Law Society of Ontario. She is also a member of the Ontario Bar Association, the Canadian Tax Foundation, Women’s Law Association of Ontario, and the Toronto Jewish Law Society.
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