GST/ HST

Purpose of the GST system

It is a value-added end-consumer tax on supplies of goods and services made in Canada. The GST regime follows the value-added tax structure. Businesses act as intermediary between end-consumer and CRA.

Net GST to Remit to CRA

GST collected – GST paid from purchases (input tax credits [ITCs])

Who Must register for GST

A person who is engaged in a commercial activity in Canada is required to register for GST/HST

Commerical Activity

• A business that is carried on with reasonable expectation of profit (not a hobby);“reasonable expectation of profit” only required for individuals, partnerships, trusts

• An adventure/concern in the nature of trade;

• The supply of real property.

Registration Exemptions

• Non-residents who do not carry on business in Canada

• Small Suppliers (revenues from taxable supplies ≤ $30,000 in four previous calendar quarters)

• may voluntarily register to claim ITCs (if they do, they must also collect GST).

What are the two tests used to determine if you have ceased to be a small supplier

Cumulative Test and Single quarter test

Cumulative Test

cumulative total of last 4 quarters taxable supply sales > $30K, collect GST first day of the 2nd month the entity ceases to be a small supplier.

Single Quarter Test

If single quarter taxable supplies > $30K entity immediately ceases to be small supplier and must collect GST on any taxable supplies > $30K.

FULLY Taxable Supply

Collect GST (5%) on sales

Claim ITCs on purchases

Examples of Fully Taxable Supplies

Anything that isn’t a zero- rated or exempt supply

Zero-Rate Taxable Supply

GST rate is 0%

Cannot collect GST on sales

Examples: Zero-Rate Taxable Supply

prescription drugs, basic groceries, medical devices, feminine hygiene, exports

Exempt Supply

Cannot collect GST on sales
Cannot claim ITCs on purchases

Examples of Exempt Supplies

residential rent, private healthcare, childcare, education, financial services, principal residence

When are Supplies Subject to GST in Canada?

• Sale of goods: goods are delivered or made available to Canadian recipient.

• Leased goods: possession or use of the goods is given or made available to Canadian recipient.

• Real property: situated in Canada.

• Supply of any other services: performed in whole or in part in Canada.

• Intangible personal property: may be used in whole or in part in Canada.

Line 101:

total sales and other revenues in reporting period (for ALL 3 supplies)

Line 105

GST collected

Line 108

Total ITCs and adjustments (claimed when purchase is made)

Line 109

Net Tax (Line 105 – Line 108)

Line 110

Instalments (annual filers only)

When is the Detailed method Required?

When a Corp has annual taxable supplies > $1M or taxable purchases > $4M

When is the Simplified method Required?

Available to small businesses with annual taxable supplies < $1M & taxable purchases < $4M

When is the quick method allowed

Available to small business with annual taxable supplies <$400K

Detailed Method

• Required to keep GST payable and recoverable account to keep track of all GST collected/paid

• Charge GST rate on taxable supplies

• ITC = actual GST paid on eligible purchases/expense

Simplified Method

Charge GST rate on taxable supplies

ITCs = taxable purchases × 5/105

Quick Method

• Charge GST rate on taxable supplies

• Remittance is % of taxable supplies inclusive of GST

• 3.6% GST if sell services

• 1.8% GST if sell goods

• No ITCs on operating expenses or inventory purchases

General rule of thumb (includes capital real property but excludes specific rules below):

• If used 90%+ for use in commercial activity, claim 100% ITC.

• If used 10-89% for use in commercial activity, claim that % of use as ITC.

• If used < 10% for use in commercial activity, no ITC

Filling Requirements ( PY taxable sales and revenues less than 1.5M)

• Annual

• 3 months after ye

Filling Requirements ( PY taxable sales and revenues $1.5M-$6M 

• Quarterly

• One month after end of reporting period

Filling Requirements ( PY taxable sales and revenues > 6M

• Monthly

• One month after end of reporting period

When are instalments Required?

For annual filers whos GSt liability was > 3000

Instalments =

Lesser of:
- ¼ of prior year net taxes payable

- ¼ of Current year estimated taxes payable

Other basic compliances

• Retain books and records for 6 years

• Directors may be personally liable for the corporations’ GST compliance violations

• Statute of limitations for GST returns is 4 years

• If business disagrees with a GST reassessment, may file a notice of objection within 90 days of the notice of re-assessment. If still disagree, can appeal to courts.

Penalties and Interest

• Late filing penalty: 1% of unpaid amount plus .25% per month (up to max. of 12 months)

• Interest on late/deficient instalments: CRA prescribed rate plus 4% (compounds daily)

Closely held Corporations

Intercompany transactions between closely held corporations can elect to have nil consideration (aka no GST charged).

Two corporations are closely related if there is 90%+ common control of both Canadian corporations.

Asset Sale:

selling business must charge GST on disposition of business assets that are taxable supplies, but

may file joint election between buyer and seller to be exempt from GST

Joint file requirements for asset sale

• Seller makes a supply of a business carried on by the supplier.

• Buyer acquires all or substantially all (90%+) of the property to carry on business.

• One of the following situations applies:

  • The supplier and the recipient are both registrants.

  • The supplier and the recipient are both non-registrants.

  • The supplier is a non-registrant and the recipient is a registrant.

Share Sale

Consider exempt and not subject to GST

GST Implications of Taxable Benefits

• GST does NOT apply to direct compensation (salaries, wages, etc)

• If an employee receives a taxable benefit, business is deemed to have collected GST on the FMV of benefit received by the employee (so long as it is a fully taxable supply) and must remit to CRA.

• Value of taxable benefit to employee reported on T4 = FMV of benefit + deemed GST

• Note for employees: can claim a rebate of GST paid on employment expenses through personal tax return