Understanding The Basics GST & pst for Canadian Business Owners
Today, let’s try to understand GST and PST for our Canadian business owners.
If you are making sales, you are obligated to collect GST and PST.
Generally, you charge GST on all of your sales made within Canada. GST/HST rates vary across provinces.
For instance, in BC, GST is 5% and PST is 7%, and in Ontario, they have something called the Harmonized Sales Tax (HST), which is a flat 13% that combines both.
Now, if you’re a business based in BC, you’ll charge whatever the rate is based on where your clients are.
- If your clients are in BC, you charged the 5% GST and 7% PST.
- For your Ontario clients, you’ll charge the HST, which is 13%.
- International clients? No GST or PST for them.
But, and it’s a big but, before you start collecting GST, you need to register for it. Your corporate business number is not your GST number. Register with CRA online or give them a call
When Should You Register For GST?
Do you need to register right away? Short answer: No, not necessarily.
It becomes mandatory once your total annual revenue hits $30,000 in a consecutive 12-month period.
However, you can voluntarily register before hitting this threshold. But why would anyone one want to do that? Well, consider this.
If you are starting a trucking business and are making large purchases, say a Freightliner, it would be beneficial for you to register for GST right away, as you’re eligible to GET BACK that GST paid on the truck.
Another example would be restaurants. They need leasehold improvements and equipment just to get started. You can get that GST paid back, especially if you have not officially opened up yet.
So If you’re starting up and incur significant setup costs, you can claim back the GST you spend on those expenses.
Crunching The Numbers
Let’s walk through some calculations to see how GST works.
Say you are a BC business owner and you billed clients $100,000 for the year, you would collect 5% GST on all sales.
Simultaneously, you spent $20,000 on subcontractors, incurring 5% GST.
GST Collected: $5,000 – 5% of sales
GST Paid: ($1000) – 5% paid for subcontractors
GST Owing: 5000-1000 = $4,000
The GST filing at the end of the year is the collected amount minus the paid amount. So, if they collected $5,000 but paid $1,000, they owe $4,000 in GST.
Some items are GST exempt, like groceries and medicine. There’s also a link below with detailed lists. If your business isn’t there, call CRA for a ruling.
GST List, click here.
PST List, click here.
The default period for filing and remitting GST is annually. The deadline to do this is 3 months after the year end date.
If you will owe more than $3,000 in GST, quarterly remittances are required. If they’re not made, CRA may assess some interest charges.
Invoicing and Getting Paid
Now that you’re getting it, let’s talk about making that sale and getting paid. While you can create invoices in Word or Excel, it’s recommended to start with accounting software. Check out Xero.
Xero basically takes out a lot of the unnecessary date entry. For example, when invoicing,you can add a friendly reminder for timely payments. As well, it keeps your accounts receivable in check.
And there you have it, a crash course on GST and PST for Canadian business owners.
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