The Beginners Guide to HST - Part 1
Disclaimer: This information does not replace the law found in the Excise Tax Act and its regulations. This information is intended as general information only and should not be relied upon as advice relating to your specific operations or activities.
As your business grows, you may have many questions surrounding HST. Do I need to charge it? Who do I need to charge? How do I get set up?
Don’t worry - we have you covered! In these two articles, we will break down when you need to charge HST and how to get set up. This article will define the different sales taxes you might see referenced when to start charging HST and what to do right after getting your HST number.
What are GST, PST, and HST?
These are all sales taxes. Each is charged at a different level of government.
GST (Goods and Services Tax) is the federal government’s sales tax on goods, services, or digital products purchased or sold in Canada.
PST (Provincial Sales Tax) is the sales tax implemented at the provincial level. It is called QST in Quebec and RST in Manitoba.
Harmonized Sales Tax combines PST and GST, the total tax payable in Ontario and the Maritime provinces (Nova Scotia, Newfoundland, New Brunswick, and PEI). The PST and GST are not shown separately but together as one rate.
We should note here that HST is entirely separate from income tax. Income tax is what you pay on your income, net of HST.
Collecting HST
When you collect HST, you are charging that on top of your regular fee. You are going to have to remit that or pay it to the government. That’s right; you’re a tax collector! It is not yours to keep, so you’re going to want to keep it in a separate account since you will be paying it back.
That’s the bad news out of the way. The good news is that you can offset that amount with the HST you have paid on purchases, called ITC’s (or input tax credits), which we will discuss in the following article.
When do I need to register for an HST number?
This is a very common question. The rule is that when you make over $30,000 in worldwide revenue during a 12-month period, you must register for HST. That $30,000 is for all sources of income that you currently operate as a sole proprietor.
Let’s pick this apart - what is worldwide revenue? Say, for example, you sell headbands in Canada and teach yoga in Switzerland; both income sources make up your worldwide income.
Also, note that it’s a 12-month period, not a calendar year. So say from January to December, we earn $20,000. You don’t need to register for an HST number yet.
However, what if you earn $31,000 between June and May? Then you will need to register for an HST number at that point and start charging HST.
You must have an HST number before you start charging HST. That number should be going on all your invoices. The handy thing is that if you’re a sole proprietor with multiple businesses, those businesses can share an HST number.
You can also register voluntarily for an HST number and begin charging HST at any time. Why would you want to do that? One reason is to take advantage of ITC’s - which we will discuss in our next article.
Also, it can help with how others view your business. Specifically, by not having an HST number on your invoice, you tell your customers that you make less than $30,000.
Registering for an HST number
Registering for an HST is a simple process online or over the phone with the CRA at 1-800-959-5525. You will need your SIN number and business number handy.
I’ve registered for HST - now what?
You’re not done yet - there are a few more steps you need to take to keep the CRA happy! Join us in our next article where we outline the next steps you need to take.
In the meantime, reach out and book a call to talk about your burning HST questions (or any accounting questions)! We are always happy to help.
