Most small businesses in BC will have to register for GST and PST to become tax-compliant, but where do you start? In this article, we’ll cover the basics of GST, Goods and Services Tax, PST, and Provincial Sales Tax that small business owners will want to know early in their entrepreneurial journey.
Understanding GST and PST will go a long way to ensure your taxes are legally filed and can help you avoid a tax headache.
What is GST?
GST is a sales tax that applies to the supply of almost all goods and services in Canada. GST may be combined with a province’s provincial sales tax to create a harmonized sales tax (HST). In other provinces and territories, the provincial sales tax (PST) or retail sales tax is applied separately. In BC, GST is 5 percent, and PST is 7 percent.
Registering for GST is mandatory for all small businesses with gross annual revenue exceeding $30,000 – unless your product or service is exempt. However, if you voluntarily register, you may be reimbursed for GST that you pay out for business expenses.
Registered businesses have important responsibilities, including filing returns on time, collecting taxes on taxable supplies and remitting any taxes owed to the government.
What is PST?
The BC PST, or Provincial Sales Tax, is a retail sales tax of 7 percent applicable to taxable goods, services, and products. Unless a specific exemption applies, or you are a “small seller” with less than $10,000 in gross sales, all businesses in the province must register to collect PST.
Businesses that register for PST must:
- Charge and collect PST on sales.
- Report and pay the PST you collect, plus the PST you may owe on items you use in your business.
How do you Register for GST?
You can register for GST online via the GST/HST for businesses page. You’ll likely start by registering for a Business Number (BN) using the Business Registration Online (BRO) service.
Once you have a business number, you can continue and register for a GST account.
How do you Register for PST?
You can register for PST online via eTaxBC. There is a nine-step registration process that takes between 15 and 25 minutes to complete and may require you to submit documents and identification.
Who Pays GST and PST?
Almost every individual and business has to pay GST on the purchase of taxable goods or services. However, some exemptions apply for certain persons and zero-rated supplies.
Who Charges GST?
Registered businesses must charge their Canadian customers GST on imported and taxable goods and services they sell in Canada.
What Does GST Apply to?
Most goods and services supplied or imported into Canada are subject to GST.
Are There Goods and Services Exempt from GST?
There are goods and services that are charged zero percent GST, and goods and services that are exempt from GST.
Goods and services that are taxable at a rate of 0 percent are called zero-rated supplies. Businesses don’t have to collect GST for these supplies. Registered businesses can still claim an input tax credit for the GST they pay on purchases and expenses used to provide the zero-rated supplies.
Zero-rated supplies can include:
- Basic groceries
- Prescription drugs
- Select medical devices
- Some agricultural and fishing products
- Exports
Goods and services can also be exempt from GST. If your business only provides goods and services that are exempt from GST, you can’t register for GST. But you can’t charge GST, and you can’t claim input tax credits.
Exempt supplies can include:
- Used residential housing
- Legal aid services
- Select health, medical and dental services
- Many educational services
Do You Qualify for Input Tax Credits?
You can recover the GST you pay or owe on purchases and expenses related to your business with income tax credits, which are counted against the GST you collect from your customers. If you are owed more in income tax credits than you owe in GST, you will receive a refund.
In general, input tax credits can only be applied to items that you directly use for your business.
Small Business BC is Here to Help
SBBC is a non-profit resource centre for BC-based small businesses. Whatever your idea of success is, we’re here to provide holistic support and resources at every step of the journey. Check out our range of business webinars, on-demand E-Learning Education, our Talk to an Expert Advisories, or browse our business articles.
