GST/HST for Canadian businesses: What you need to know

Most goods and services sold in Canada are subject to sales tax. The Goods and Services Tax (GST) is a federal sales tax that applies at a rate of five per cent across the country. Provincial Sales Tax (PST) has different policies depending on the province. Some provinces have their own PST, while others only use GST.

The Harmonized Sales Tax (HST) is the result of Ontario, Prince Edward Island, New Brunswick, Nova Scotia, and Newfoundland and Labrador harmonizing their PST with GST.HST applies at a rate of 15 per cent in all of these provinces, except Ontario where the rate is 13 per cent.

Any entity that carries on a business in Canada, sells taxable supplies, and is not a small supplier is required to register with the Canadian Revenue Agency (CRA) for a GST/HST account. Although sales tax is paid by the buyer at the point of sale, it is the responsibility of registered entities to charge GST/HST on their taxable sales and remit it to the CRA.

Carrying on a business in Canada for GST/HST purposes

An entity will be considered to carry on business in Canada for sales tax purposes if they have commercial activities that regularly or continuously occur in Canada. Whether or not an entity meets these criteria is open to interpretation. Generally, entities that have been incorporated in Canada will be considered to carry on a business in Canada.

For non-resident entities, a factors-based approach, as outlined in the GST/HST policy statement P-051R2 Carrying on business in Canada, is used to determine if a business is being carried on in Canada. Factors considered as part of this approach include:

• location(s) where assets are purchased or stored
• location of employees and offices
• location of transactions with customers

Since every entity operates differently, these factors must be interpreted on a case-by-case basis, giving more consideration to factors that are most relevant to the situation. Any non-resident entity that does not carry on a business in Canada is not required to register for GST/HST however there may be some benefits in doing so (see ‘Benefit of voluntary registration’ below).

Taxable supplies

A taxable supply is a good or service on which GST/HST must be charged and remitted. In general, any good or service that is not an exempt supply will be a taxable supply.

An exempt supply is a good or service on which GST/HST cannot be charged. Examples of this type of supply include residential real estate rental and medical services.

A zero-rated supply is a good or service on which GST/HST is charged, but at a rate of zero per cent. Exports and most grocery and agricultural products are examples of zero-rated supplies.

Please note that the guidelines presented in this article are not intended for businesses that primarily make electronic supplies. Electronic supplies refer to goods and services which can only be utilized on an electronic device, such as streaming subscriptions, email services, or web-based advertising. Businesses that sell electronic supplies have a separate set of rules pertaining to the remittance of GST/HST. More information can be found here.

Small suppliers

A small supplier is an entity whose total revenue from the sale of taxable supplies from the previous four consecutive calendar quarters is less than $30,000. This also includes all revenues on taxable supplies from associated companies. Small suppliers are not required to register for GST/HST. However, registration will be required once the entity ceases to be a small supplier as a consequence of crossing the $30,000 threshold.

If the small supplier makes a sale that pushes their total revenue over $30,000 for the current calendar quarter, the entity immediately stops being a small supplier at the time of that sale. Tax must be collected on that sale and every subsequent sale. The entity should register with the CRA for GST/HST purposes as soon as possible.

If the small supplier does not pass the limit in a single calendar quarter, but collectively makes more than $30,000 in total revenues over four or fewer consecutive calendar quarters, then the entity will still be considered a small supplier for one month following the end of the quarter in which they exceeded the threshold. After this time passed, the entity must register with the CRA and charge GST/HST on all taxable sales going forward.

The benefit of voluntary registration

Although not required to register with the CRA, small suppliers and non-residents that do not carry on a business in Canada may voluntarily choose to do so. One of the benefits of being a registrant is the ability to claim input tax credits that can be used to recover GST/HST paid on various purchases incurred in the course of commercial activities. This includes operating expenses, such as utilities, advertising, and office supplies, as well as expenditures for the acquisition of capital assets used in the business. Particularly valuable for non-resident entities is the ability to claim input tax credits for GST paid at the border.

There are limitations to claiming input tax credits. Any purchase that is made for personal consumption, rather than for business use, such as membership fees for recreational clubs, cannot be claimed. If the expense or property is used for both personal and business purposes, then only the percentage used for business purposes is claimable. Additionally, expenses and expenditures incurred in the course of making exempt supplies are not claimable. If the entity makes both taxable and exempt supplies, only expenses relating to the taxable supplies, including zero-rated supplies, are claimable.

GST/HST returns

The effective date of registration for a new registrant can be the date the entity registered voluntarily or was required to register. It is generally possible to backdate the registration up to 30 days. From the effective date of registration forward, the entity must remit GST/HST on the sale of all taxable supplies. The entity also becomes responsible for routinely filing GST/HST returns with the CRA. The frequency of these returns is determined by the amount of total revenues the entity and its associated companies have from the sale of taxable supplies.

• An entity with revenues of $1,500,000 or less will have an annual reporting frequency. The due date for their return will be three months from their fiscal year-end.
• An entity with revenues over $6,000,000 will have a monthly reporting frequency.
• An entity with revenues between $1,500,000 and $6,000,000 will have a quarterly reporting frequency.
• Entities with a monthly or quarterly reporting frequency must file their return by one month after the end of the reporting period.

An entity can choose to file more frequently than required but cannot file less frequently. For example, an entity required to file annually could file monthly if they so chose, but an entity required to file monthly could not file annually. Reporting frequency is adjusted as required annually by the CRA.

A return must be filed even if the business had no transactions or tax to remit for the reporting period. Failure to remit tax or file a return by the appropriate deadline can result in monetary penalties being assessed by the CRA.

If you believe that your business may be required to register for GST/HST, are interested in registering voluntarily, or have any other questions regarding sales taxes in Canada, the Fuller Landau Tax team is ready to answer your questions.

About the authors

Robert Davies CPA is a Manager in our Tax group. He can be reached at rdavies@fullerllp.com or 416-645-6507.

Nicole Humphries was a Junior Tax Specialist in our Tax group during her 2022 co-op term.