Items and Services Tax or GST is often a consumption tax that is charged on many products and services sold within Canada, regardless of where your small business is located. Subject to certain exceptions, all businesses are required to charge GST, currently at 5%, plus applicable provincial sales taxes. A business effectively represents a representative for Revenue Canada by collecting the taxes and remitting them on the periodic basis. Corporations are also allowed to claim the taxes paid on expenses incurred that report to their business activities. These are generally termed as Input Tax Credits.
Does Your Business Have to Register? Just before starting virtually any commercial activity in Canada, all companies have to determine how the GST and relevant provincial taxes affect them. Essentially, all companies that sell products or services in Canada, for profit, have to charge GST, with the exception of the subsequent circumstances:
Estimated sales for the business for 4 consecutive calendar quarters is expected to get lower than $30,000. Revenue Canada views these businesses as small suppliers plus they are therefore exempt.
The company activity is GST exempt. Exempt services and goods includes residential land and property, child care services, most health and medical services etc.
Although a tiny supplier, i.e. a small business with annual sales lower than $30,000 isn’t needed to submit GST, in some instances it’s best for achieve this. Since a business can only claim Input Tax Credits (GST paid on expenses) when they are registered, many businesses, particularly in the start-up phase where expenses exceed sales, might find they are capable of recover a great deal of taxes. This has to be balanced contrary to the potential competitive advantage achieved from not charging the GST, along with the additional administrative costs (hassle) from being forced to file returns.
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