Harmonized Sales Tax (HST) is something everyone is familiar with. Every time you make a purchase, whether at a store or online, you see the charge at the bottom of the page for HST. Well, now that you’ve started your own business, should you be collecting HST? How do you register for HST? How do you file an HST return?
HST is paid on a net balance. When you charge a client for goods or services, you also charge them HST, and when you purchase goods or services from someone else, you pay them HST. You need to keep track of all the HST collected, along with all the HST paid to others, and file a return paying the balance to the Canadian Revenue Agency (CRA). Now that you understand how HST works, does it apply to you?
The Excise Tax Act (ETA) outlines that a business considered to be a small supplier does not have to register for HST. A small supplier is considered to be a business that provides goods or services and does not exceed $30,000 in 4 consecutive calendar quarters, and a calendar quarter is a period of 3 months beginning on the first day of January, April, July, or October. What this is saying is that if your sales are $30,000 or less, you can continue to run your business as usual and not worry about filing an HST return at the end of each year. With that being said, you want to make sure you keep a close watch on your sales, as the sale that pushes you over the $30,000 threshold requires you to collect HST on that sale. Once you register for HST, you then have the option to file monthly, quarterly, or yearly. This is important as it affects your cash flow issues. Often for convenience, it’s recommended to file yearly, however, other options might be better suited for a business decision.
This is great news if your business has revenues, but not a lot of expenses, like a writer, or graphic designer where you work off of a computer. But what if you’re a baker or landscaper and you need to buy some expensive equipment just to get started? The CRA allows voluntary HST registration to small suppliers. This way, the landscaper who needs to purchase equipment but isn’t sure if they’re going to generate $30,000 in revenues, will have the HST paid on the equipment refunded. Timing is important when considering when to register for HST!
It is best to contact a CPA to discuss your unique situation, and even if you don’t think you need to register for HST it may be worth discussing to see if voluntary registration may be right for you.