How to Register For GST HST in Canada

Two benchmarks to watch for when you are a small supplier:

(1) When you meet or exceed the small supplier threshold of $30,000 in a single quarter, you are considered registered and must begin collecting GST/HST on all sales after the threshold has been met. HST GST registration must officially be applied for within 29 days of collection beginning.

(2) If you meet or exceed the small supplier threshold of $30,000 over four (or fewer) consecutive quarters, you must begin collecting GST/HST one month after the fourth quarter. You have 29 days from when you begin collecting to officially register.

Once you meet the threshold, you are no longer a small supplier. Side note: Generally businesses that provide only exempt supplies cannot register for GST HST.

If you do not officially register when you meet the threshold of $30,000, you will lose your ITCs ... ouch! Expensive!

The February 2014 Federal Budget announced that CRA will be allowed to automatically register businesses if they have been notified and failed to comply. The automatic registration will occur 60 days after official notification. This change took place effective with the Royal Assent of the enacting legislation.

Let's discuss the considerations for small suppliers thinking about voluntarily registering for GST/HST.

For small suppliers with annual sales under $30,000, deciding whether to voluntarily register for GST/HST involves several factors. Let's look at (1) what you are getting yourself into if you choose to register and (2) consideration if your startup costs are capital intensive and significant.

Obligations and Benefits of GST/HST Registration

With voluntary GST/HST registration as a small supplier business, you start charging GST/HST on your products and services that are not zero rated or exempt. You also become eligible to claim input tax credits. This comes with both advantages and drawbacks which need to be carefully considered. Here's a brief analysis of the pros and cons of voluntarily registering for GST/HST:

Advantages of voluntarily registering for GST/HST for small suppliers:

1. Input Tax Credits: Among the advantages is the ability to claim input tax credits. This means the GST/HST paid on your business expenses can help offset the GST/HST due on sales.

When you are GST/HST registered, you can claim input tax credits which are the GST/HST paid on your business expenses. Therefore, you can offset the GST/HST paid on purchases against the GST/HST due on sales because GST/HST is neutral to your business. If you are an eligible service business, you make even make a small profit if you choose the Quick Method of reporting.

2. Business Image: Being GST/HST registered could also help improve the image of your business. Having a GST/HST registration number can make your business seem more credible and established to other businesses. As a small supplier, you have to determine if registering for GST/HST will have a positive or negative on your business image.

Some corporations only do business with GST/HST registered companies. It also one of the ways to establish to a CRA auditor that you are "acting in a manner" that is like a business.

3. Avoid Penalties: If you exceed the GST/HST threshold and haven't registered, you may face penalties or interest charges. Small suppliers can avoid the risk of missing their mandatory registration threshold by registering before you hit the threshold. It's a strategy to avoid penalties through early GST/HST registration.


Drawbacks of GST/HST registration for small suppliers:

On the other hand, there are several downsides to voluntary GST/HST registration.

1. Additional Administrative Work: For one, it implies taking on additional administrative work because you will have to keep on top of your bookkeeping. This represents an additional administrative burden.

Being registered for GST/HST means maintaining detailed records of invoices, payments and sales, makes submitting GST/HST returns regularly a non-issue if you incorporate the habit of attending to the business paperwork daily. Let's be realistic, you need to keep up with your paperwork to file your annual tax return. If you choose to be an annual GST/HST filer, it's easy to file your GST/HST return at the same time.

2. Potential Cash Flow Impacts: Another aspect to consider is the potential impact on cash flow. Unless your input tax credits regularly exceed your collected GST/HST, you could find yourself having to remit excess GST/HST which could negatively affect cash flow if you have been spending the GST/HST you collected from your customers. Learn how you can avoid that problem.

3. More Complex Pricing: Lastly, introducing GST/HST can complicate your pricing strategy as you will either need to incorporate it in your prices or add it at the point of sale, possibly making pricing complex for businesses selling directly to customers. But hey, tech is your friend when you are a small business.

From a tax perspective, this strategy may be beneficial if your startup costs are capital intensive. You can collect ITCs on your startup costs if you register voluntarily before you reach the mandatory threshold. Registration timing can be crucial, and taking the correct measures when gathering startup costs should be considered when making this decision.

1: Recovery of Startup Cost ITCs

For businesses in the startup phase, GST/HST registration facilitates the recovery of input tax credits (ITCs) on business purchases and startup costs, potentially offsetting high initial expenses. Conversely, delaying registration may result in the loss of these ITCs, as the Canada Revenue Agency (CRA) generally doesn't permit retroactive registration.

2: Missed Startup ITCs

Claiming ITCs on startup expenses can be beneficial if the business voluntarily registers for GST/HST. If you didn't register for GST/HST while you were getting your business up and running, you may still be able to recover some (not all) ITCs from this period despite CRA's rule that it doesn't permit retroactive registration. We are talking about GST/HST paid or payable on capital expenditures made during your startup but prior to registration.

CRA guidelines allow ITC claims on any GST/HST paid or payable for goods in possession at the time of registration, assuming these were purchased for the supply of taxable goods or services. It is important to maintain accurate records of these purchases and expenses.

3: Input Tax Credit Categories

During the GST/HST registration process, businesses can claim ITCs of goods for the fair market value (sorry not the original cost) under certain conditions. There are three categories of goods and each is treated a bit differently:

• Capital assets in use and purchased during the five years prior to registration
  
  After GST/HST registration, you are allowed to claim ITCs for the fair market value of capital assets you still use for your commercial activities. However, this only applies if the capital properties were acquired during the qualifying period that is five years before your effective date of registration. It also means you do not get to claim the entire input tax credit as you are bringing the property in at fair market value not original cost.
  
  
• Other goods, including inventory, procured within the two years before registration
  
  Just like the capital assets, you can also recover ITCs on other goods that you still have on hand (or inventory) when you become a GST/HST registrant provided you acquired those within two years before your effective date of registration.
  
  
• Expensed ITCs before registration are generally non-recoverable, but exceptions may exist.
  
  If the GST/HST paid was incurred before your effective date of registration and you expensed it as it was not a capital property, you generally aren't able to recover them. However, as always there might be exceptions and therefore it's important to consult with a tax advisor or directly with the CRA for your individual unique circumstances.

MORE: << Learn more about how input tax credits work

Source: CRA GST/HST policy statement P-019R Eligibility for ITC on "start-up" costs - Eligible capital property

To claim ITCs incurred before your GST/HST registration date (I.E. when you register), you must meet certain conditions. Here are the main ones:

1. The expenses or purchases must be those that relate to your commercial activities;
2. The capital property is still on hand or you still have the inventory when you become a GST/HST registrant;
3. Expenses or purchases have to be made within the specified time period. 
       - For capital property, it’s within five years before your effective date of registration.
       - For all other property (which includes inventory), it is within two years before your effective date of registration.

Do I need to say? Keep proper records of these purchases and expenses to support these claims. CRA disallows claimed input tax credits during audits if they do not meet their strict criteria.

You can find instructions and a worksheet to help you value your assets in accordance with CRA rules. You'll find it as part of CRA's discussion on CCA: Changing from personal to business use.

TIP

More >> You want to learn about capital cost allowance especially the available for use rules and when the first fiscal period is less than 365 days

Each business should consider these factors based on their individual circumstances and consult with a tax advisor or directly with the CRA before deciding on whether to register for GST/HST in Canada. This post summarizes general guidelines and should not replace legal advice.

Let's start with a brief recap of when you need to register for GST HST in Canada.

It is a legal requirement that when a small business exceeds a total taxable revenue of $30,000 in any four consecutive calendar quarters, the business is required by law to register for the GST HST in Canada.

Small suppliers are businesses whose total taxable supplies were less than $30,000 in the previous four quarters. Small suppliers are not required to register for GST HST in Canada.

Here's my understanding of how GST/HST works to lower your total home based business taxes and why you might want to consider voluntarily registering for GST HST as a small supplier.

I. Sales under $30,000 and you are not registered

You have sales of $1000 on which you cannot charge GST and expenses of $675 on which you paid GST of $33.75. 

Net Profit to you is $291.25. You pay income taxes on this amount (which you can reduce by considering other deductions that are available such as CCA, home office expenses and business use of your personal vehicle).

Federal income taxes would be $43.69 ($291.25 x 15%) as I assume your total taxable income is under $55,867 (2024 maximum for 15% tax rate). I won't bother with provincial tax for this example.

II. Sales under $30,000 and you are registered

You have sales of $1000 on which you charge $50 GST and expenses of $675 on which you paid GST of $33.75.

Net Profit to you is $325.00. You pay income taxes on this amount (which you can reduce by considering other deductions that are available such as CCA, home office expenses and business use of your personal vehicle). 

Federal income taxes would be $48.75 ($325 x 15%). Again, I won't bother with provincial tax. So you are right in thinking you are paying higher income taxes.

However, you also submit your GST report as follows:

GST collected $50.00 and GST paid $33.75. Amount owing to CRA is $16.25 (rather than the full $50.00 collected in sales tax) as you claim the input tax credits. During some periods when your sales are slow, your expenses may exceed your sales. Then you would receive a refund.

So now total taxes paid are:

Federal income taxes would be $48.75 ($325 x 15%). 

Subtract ITC refund $33.75 received after filing report = $15.00 in total taxes paid.

A total home business tax savings of $28.69 ($43.69 - $15).

After taking into affect the GST ITC refunded, you now have paid less tax because GST is a neutral tax to GST/HST registered businesses. That's how I look at it.

If you had registered for GST/HST during the startup of your business, you could have claimed all of your ITCs from startup and received a refund. This is really helpful if your startup costs were capital intensive. Check out how you can recover some of your ITCs if you weren't registered at startup ...

Once you have completed your free HST GST registration, you will have to file your first return. Here is what you should know.

CRA may "audit" you the first time you file a HST GST return with a refund balance probably as part of their Liaison Officer Visit Program.

The CRA is interested in verifying the existence of your business and your startup costs. They also want to ensure you are aware of your rights and responsibilities and have adequate books and records.

If CRA finds your books and records are unsatisfactory, they will make recommendations and answer any questions you may have. So take the time to do a proper job of your bookkeeping.

Learn More>> How to File Your First GST HST Return in Canada

The February 2014 Federal Budget announced that CRA will be allowed to automatically register businesses if they have been notified and failed to comply. The automatic registration will occur 60 days after official notification. This change took place effective with the Royal Assent of the enacting legislation.

To provide an answer to this question, I went hunting for advice from experts in dealing with these situations.

Achen Henderson CPAs say in their blog titled Are you wondering if your business needs to register for GST/HST? that "CRA routinely reviews self-employed business income reported on personal tax returns and checks to see if the individual is registered for GST/HST. If not, the CRA will typically contact the person and ask why. They can also tell that an individual owns and controls a registered business ... from specific schedules on the corporate tax return and may assess GST ... and register her if they cannot contact her."

That same blog talked about an associated group of companies. "If a company in an associated group of companies that are already registered for GST/HST and the company is earning taxable revenues and does not register under the belief that it must exceed the $30,000 taxable sales threshold for example, is at risk of the CRA deeming them to have collected GST/HST. That is, the company associated to the other registered group of associated entities must have been registered and collected GST/HST at the time of its first taxable sale, regardless of the value."

Their view on whether and when to register for GST HST in Canada is that "The core theme is that once a business is formed or incorporated (including sole proprietors) and will eventually be making taxable and/or zero-rated supplies at any point in the future, they should register for GST/HST effective the same day they “start their business” and begin to charge (if applicable) report and remit, GST/HST on those revenues, while also being eligible to claim ITCs on the same returns."

The Achen Henderson CPAs blog is a great read if only for the examples they provided.

If you do not officially register when you meet the threshold of $30,000, you will lose your ITCs ... ouch! Expensive! Upside Accounting explains it this way in their article titled, Registering for GST/HST Retroactively.

"... when/if the CRA undertakes a tax audit of your business and finds out you have enough sales, but haven’t been collecting sales tax, it will give your company a business number and issue HST assessments and apply tax penalties. They will also deny all available ITCs, including start-up costs, legal and accounting fees, rent, office expenses, phone and utilities, and even car expenses. If you want to claim them, you’ll have to finally file those HST returns or a notice of objection to dispute the HST tax amounts assessed.  The penalties for not filing and the denial of ITCs can make for huge debts which the CRA will be coming to collect. ..."

Upside Accounting explains in the same article that you do have the option to file a Voluntary Disclosure application if you didn't register your business for GST/HST on a timely basis. The CRA, in these type of cases, will likely assign a retroactive GST/HST registration number to the dat of the first customer invoice that was created. The article explains that "Penalties and interest can only be forgiven for a ten calendar year period, and the latest you can send a GST/HST return to claim your ITC is no later than four years after the due date for the return in which you could have first claimed the ITC.  ITCs older than four years old are not available to be paid back upon GST/HST registration, although they can be used as a credit to offset any GST/HST payable in order to lower the ultimate amount you owe for any prior reporting period. "

This Upside Accounting article is worth reading in its entirety. It explains the three tracks in the Voluntary Disclosure that GST HST applications are processed.

To wrap this up, let me say I'm in agreement with Achen Henderson CPAs, that you should register for GST HST in Canada the same day you “start you business”. As Upside Accounting mentioned, "[why] leave money on the table in the form of UTCs that would otherwise be refundable."

Authorized Vendors

It is your responsibility to ensure that any of your suppliers charging you GST HST are legally registered with CRA to do so. To assist you in determining this, CRA has a GST HST Registry where you can check the supplier out.

If you are ever concerned about a particular vendor being a GST HST registrant, use the registry to set your mind at ease or confirm your suspicions.

You are probably wondering "Why do I care?"

Well, if you submit ITCs from a vendor who was not authorized to collect GST HST in the first place ... during an audit, these ITCs will be rejected and you will be expected to pay back the unauthorized ITCs.