Table of Contents
GST/HST is the tax most Canadian businesses get wrong first, because it is not really your money and the CRA treats it that way. This guide explains how the tax flows, when you must register, and how input tax credits actually work.
Registration: the $30,000 threshold
You must register for GST/HST once your worldwide taxable revenue exceeds $30,000 over four consecutive calendar quarters. Below that, registration is optional but often worthwhile, because a registrant can recover the tax it pays on expenses. Cross the threshold in a single quarter and you are required to register immediately, not at the end of the year.
How the tax flows
You collect GST/HST on your taxable sales (the rate depends on the customer's province, from 5% GST in Alberta to 15% HST in the Atlantic provinces), and you pay it on your purchases. What you remit to the CRA is the difference:
- Tax collected on sales, minus
- Input tax credits (ITCs) for tax paid on business expenses.
If you collected more than you paid, you remit the balance. If you paid more, for example in a start-up quarter heavy on equipment, you claim a refund.
The Quick Method
Small businesses under $400,000 in taxable sales can elect the Quick Method, remitting a flat percentage of sales instead of tracking every ITC. For a service business with low expenses, the Quick Method frequently leaves money on the table in your favour, plus a 1% credit on the first $30,000 of eligible sales. It is one of the most overlooked elections in Canadian sales tax.
Place of supply and common mistakes
The rate you charge follows the place of supply, usually the customer's location, not yours. An Ontario consultant billing a client in Nova Scotia charges 15% HST, not 13%. Two other frequent errors: forgetting that exports of goods and services are generally zero-rated (0%, with ITCs still claimable), and treating exempt supplies such as most financial or residential-rent services as if ITCs were recoverable. They are not.
Filing frequency
The CRA assigns annual, quarterly or monthly filing based on your revenue, and you can elect to file more often to smooth cash flow or accelerate refunds. Whatever the frequency, the golden rule is to set the collected tax aside as you receive it. It was never working capital.