One of the first questions we always get from new entrepreneurs is about charging tax.
As more Canadians — especially Albertans — move into small-business ownership, they need to familiarize themselves with the tax rules. In Alberta, it’s a bit easier than the rest of the country. We don’t have a provincial sales tax, so we mostly have to concern ourselves only with charging the Goods and Services Tax (GST). (Note: if you sell to customers or clients in provinces other than Alberta, different rules apply. We’ll go into that on Thursday.) Charging GST is mandatory for all businesses unless you are:
- Selling goods or services that are classed as GST zero-rated or exempt
- A small supplier
The Canada Revenue Agency (CRA) considers your business a “small supplier” if your total taxable revenues before expenses are $30,000 or less in the last four consecutive calendar quarters and in any single calendar quarter. It is a good idea, however, for small businesses to voluntarily register for a GST number before you reach that $30,000 threshold.
If you expect revenues to reach that number, you should proactively register. According to the CRA, you will be considered a GST registrant in the calendar quarter that you surpass the earnings threshold. You must register within 29 days of the day you exceeded $30,000.
Small business benefits
Even if you are a small supplier you should consider registering for a GST number. Once you’re in the system, you can claim Input Tax Credits (ITC).
These tax credits allow you to deduct the amount of GST collected on your business expenses from the amount of GST you have to send to the government.
An expense or purchase is eligible to claim ITC if it is reasonable in quality, nature and cost in relation to the nature of your business.
Charging your customers
You must inform your customers that the five per cent GST is being applied to their purchases. You must clearly demonstrate one of the following:
- The total amount paid or payable includes the GST
- The amount paid or payable and the amount of GST payable
You can do this on cash register receipts, invoices, contracts or signs at your place of business.
Sending the money to the government
This is the part that sucks: You’re collecting money for the government so you have to give it to them. Once you’re registered to charge GST, the CRA assigns you a reporting period.
You must file a GST return for each reporting period. Your return shows the amount of tax you collected during the reporting period, along with the amount of ITC you are claiming.
Here to help
A1 Accounting, a Calgary accounting and bookkeeping firm, is here to assist you with your taxes and planning. We specialize in personal taxes and small-business accounting and financial services. Contact one of our tax specialists and we can help you optimize the tax benefits and credits available to self-employed individuals and small businesses.
Fill out our contact form or give us a call at 403-226-8297.