If you have a business and collect GST/HST, managing your GST/HST obligations can be complicated.
If you operate a business and your worldwide sales exceed $30,000 during any calendar quarter or your sales exceeded $30,000 in the last four consecutive calendar quarters, you are required to register for a GST/HST account and collect GST/HST on the products or services you sell.
If your business earns less than $30,000 in worldwide sales in a given year, you are deemed a small supplier and need not register. Registration means you will have to collect the GST/HST on your goods and services and hold the money you collect from your customers “in trust” before remittance to the CRA. All GST/HST registrants must file a GST/HST return and remittance for the GST/HST collected.
If you are a public service, you are deemed a small supplier if the value of what you sell is less than $50,000 during any calendar quarter. For GST/HST purposes, a public service is either a non-profit organization, a charity, a municipality, a school authority, a hospital authority, a public college or a university. Small suppliers do not need a GST/HST account.
The HST applies in the participating provinces at the following rates: 13% in Ontario; 15% in Nova Scotia; 15% as well in New Brunswick and in Newfoundland and Labrador since July 1, 2016, and in Prince Edward Island since October 1, 2016. GST applies to the rest of Canada at a rate of 5%. Finally, on April 1, 2013, the 12% HST in British Columbia was replaced by the GST and a provincial sales tax. For more information on the rates of GST/HST across Canada, click here.
Taxable Benefits and GST/HST
Taxable benefits employers might choose to provide to their employees include meals, entertainment, parking, cell phone use, Internet use, or employee training.
A reimbursement is an amount you pay to your employee to repay expenses he or she incurred while carrying out the duties of employment. The employee has to keep proper records (detailed receipts) to support the expenses and give them to you.
When the benefit is an operating expense benefit, employers in Ontario must collect 9% of the value of the benefit for GST/HST purposes or 8.4% if you are a large business on December 31, 2018, for the purpose of the recapture of input tax credits for the provincial part of the HST.
Use the Benefits chart, to find out if you should include GST/HST in the value of the benefit.
Input Tax Credits & Net Tax
As a GST/HST registrant, you may also claim a tax credit, which brings us to the discussion about net tax. We’ve established that you collect GST/HST on the sale of your goods or services to your customers. At the same time, you likely also pay GST/HST for the purchases you make for your business or for your operating costs (such as rent). As a GST/HST registrant, you can recover some of that GST/HST by claiming an Input Tax Credit (ITC), which we call an ITC for short. You will be able to claim an ITC if your purchases and expenses are for operating costs or the cost of goods sold in your commercial activities.
Businesses may claim ITCs on taxable benefits offered to employees. For example, a long haul trucking business may choose to claim ITCs for the GST/HST they reimburse to their drivers for meal and entertainment expenses they incurred in Canada.
The difference between the GST/HST you collect and the ITCs you claim is the net tax that you must remit to the CRA. You have to calculate your net tax for each GST/HST reporting period and report this on the GST/HST return. For instructions on how to calculate your net tax, go to Canada.ca/cra under the Taxes tab and then click on GST/HST.
For more information on what ITCs your business could be eligible for, take a look at form RC4022 found on Canada.ca/cra-forms-publications
Employers should also be mindful of ITC restrictions, which prevent employers from reclaiming a GST/HST input tax credit. Remember, if you cannot claim an ITC for the GST/HST paid or payable for property or services that give rise to a taxable benefit due to the restrictions:
a. Club memberships: You may pay or reimburse fees for membership to any club whose main purpose is to provide dining, recreational, or sporting facilities. In such cases, you cannot claim an ITC for the GST/HST paid or payable, regardless of whether the club membership fees or dues are a taxable benefit for the employee for income tax purposes.
b. Exclusive personal use. You cannot claim an ITC for the GST/HST paid or payable on property or services you acquire, import, or bring into a participating province for the exclusive personal consumption, use, or enjoyment (90% or more) of an employee or an employee’s relative.
c. The property or services that give rise to a taxable benefit are supplied outside Canada.
To ensure that you remit all of your GST/HST to the CRA and avail yourself of all allowable tax credits, contact a tax specialist 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.
© Kalfa Law 2019