The Beginner's Guide to HST - Part 2
So you read our previous article, and have registered your HST number. What a big step for your business!
The first step you should take is to take a moment and congratulate yourself. You started out with an idea, and now you are at this point. Pat yourself on the back, give yourself a high-five and take a moment for you.
However...you aren’t done yet. There are now some more steps that you need to take.
We’re going to go through those in this article. We’ll talk about:
Where to include your HST number
Remitting HST
Offsetting the amount of HST that you need to pay
Sharing your HST number
Once you have an HST number, there are a few places that you must include it. You should:
Include your HST number on your invoices. Accounting programs, such as Quickbooks, will let you add it to the footer of your invoice.
Show the HST separately, i.e., show a subtotal, the taxes, and then your grand total.
Put all of your HST that you receive in a separate account.
ITCs - Input Tax Credit
The amount of HST that you pay out on expenses is called an input tax credit or an ITC.
The formal definition of an ITC is a credit that a GST or HST registrant can claim to recover the GST or HST they paid or payable for goods and services they are acquired, imported into Canada, or brought into your participating province for use, consumption, or supply in the course of their commercial activities.
In other words, the HST that you spend can be deducted from the HST that you collect.
For example: Kim sells a headband for $25 and charges 13% HST (or $3.25). Kim buys fabric for $10 and pays HST ($1.30). The $1.30 (aka the recoverable amount) is deducted from the HST she charges ($3.25). So the amount that Kim must remit is $1.95.
However, HST isn’t always that straightforward. There are two things we need to consider: the place of supply and then the category of goods and services that are exempt or zero-rated.
Location, Location, Location
Place of supply is where you deliver your goods or where your services will be consumed. This is important because you charge the HST or GST rate depending on the place of supply. So let’s go back to our chart:
What about outside of Canada? Well, if you’re exporting your goods or services outside of Canada, assuming that you’re selling to a non-resident of Canada, this good or service would be zero-rated and you would not charge any HST.
What about PST? Briefly, PST is not charged if you have less than $10,000 in worldwide income and if you are not actively soliciting in those provinces. If you’re unsure, I would recommend calling their provincial tax bodies to confirm.
What Services Are Subject to Tax
There are four categories of goods and services that are subject to these taxes:
Real property (Note: there are many exceptions or additional rates that may apply here.)
Tangible personal property or tangible goods (i.e. something you can touch)
Intangible personal property (i.e. digital goods)
Services
Zero Rated vs. Exempt
You’ll hear the terms “zero-rated” and “exempt”. Let’s learn the difference between the two.
Simply put, zero-rated items are items that might incur GST and HST depending on the situation (i.e. basic groceries, some medical devices, etc.). Exempt goods and services are items that will never incur GST or HST, such as medical services.
Best Practices
So how can we be a Money-Smart CEO in managing our GST and HST.
Track your Revenue
Keep on top of your income so you know when you need to register for HST. Remember - it’s a 12-month period, not a calendar year.
Charge the Correct Rate
You need to ensure that you have your customers’ addresses letting you know where the goods will be delivered or services consumed.
Keep and Review Your Receipts
When tracking ITCs, it's very important to keep all of your receipts and review all of your receipts to confirm the taxes being charged since some items may be zero-rated or exempt. We cannot assume that everything we purchased includes HST.
Remit Your HST in Installments
If you think you'll owe more than $3,000 in HST payable in a reporting period, you are required to pay in quarterly installments. Installment payments are estimates of the amount of tax that will be remitted during the year.
This can help you make sure you don’t miss out on any HST payable amounts and can result in refunds if you’ve overpaid or overestimated how much you have to pay.
Now you are armed with what you need to tackle the charging and remitting of HST. If you have any questions specific to your business, reach out and book a call. We are always happy to help.
