Taxes can be complicated, especially if you are an entrepreneur or small business owner. Businesses are have to face different filing deadlines, tax credits and payments than individuals. But the tax man will not accept confusion as an excuse during an audit.
It’s essential that you understand the taxes that apply to you, especially the goods and services tax (GST). Filing this tax incorrectly can lead to serious legal consequences.
Protect yourself by learning the basics of GST here.
The Basics of 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 the 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 per cent and PST is 7 per cent. Registering for GST is mandatory for all small businesses with gross annual revenue greater than $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.
Who Pays GST?
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 Require You to Do?
Registered businesses have important responsibilities, which may include filing returns on time, collecting taxes on taxable supplies and remitting any taxes that are owed to the government.
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 per cent GST, and goods and services that are exempt from GST.
Goods and services that are taxable at a rate of 0 per cent 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
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.