To Be or Not To Be a GST Registrant

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(Monday, December 28, 2009)

Summary

A review of when to register for GST and the reporting requirements required by a taxable, exempt and zero-rated business.

Article

For some small businesses, the GST is not a concern, particularly where the business is not the chief source of income or activity for the owner. Specifically, if the business makes less than $30,000 per year in gross revenue from taxable goods and services or is involved in the supply of “exempt” goods and services (i.e. financial services, certain health care services), then there is no requirement to become a GST registrant. If you are unsure whether your business is involved in supplying exempt goods and/or services you should contact the Canada Revenue Agency (CRA) for a list of exempt services.

Your business may also be involved with supplying what is known as “zero-rated” goods and services (i.e. commercial fishing and farming). The goods supplied by these businesses are not subject to GST. However, the owner has the option to become a GST registrant and recover the GST he or she pays on goods and services consumed in their business. Generally if a business sells zero rated services or products it is an advantage for the business to register since they always get money back from the government.

If you are starting out and have determined that your business is involved in supplying taxable goods or services, you will then want to determine when the best time to register is. Technically, your requirement to become a GST registrant and collect the 5% tax does not take effect until you have achieved the $30,000 threshold. In the month following the quarter when the business exceeds $30,000 in sales, they must start collecting GST. However, it should be kept in mind that if you are operating two separate businesses that are both supplying taxable goods or services you will be considered one business for GST purposes. Also, the $30,000 in sales includes all sales whether taxable or zero rated (but does not include exempt sales).

You may voluntarily register at any time. Voluntary early registration may be advisable, particularly when you have incurred large start-up costs and/or acquired significant capital assets to be used in your business. It would allow you to claim back the GST you paid on these items (otherwise known as input tax credits). It should be noted here that the GST may be recoverable on personal assets contributed to the business by calculating a notional tax credit based on the market value of the assets at the time the business started.

Once you have registered, you will have to keep track of all the GST you collect on your revenue, as well as the GST you pay on your taxable expenses, which may include the GST you paid on the portion of your home and vehicle expenses that are used for business. These figures will have to be calculated and reported to CRA for each reporting period as set-up when you register. If the GST you collected exceeds the GST you paid, then you will be required to remit the difference. If it is the other way around, you will be eligible for a refund. In some cases you may be eligible to use a “quick method” which would require you to simply remit a certain percentage of your gross revenue. The actual percentage figure would depend on the industry you are in (i.e. retail, service etc).

Finally, you should keep in mind that if you are going to wind-up your business, you may be required to pay GST on any inventory or capital assets you are changing back to personal use. The GST would be based on the market value of these items at the time you ceased operations.