Goods and Services Tax 

 

Understanding GST: A Guide for Small Business 

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Goods and Services Tax (GST) is a crucial aspect of doing business in Canada. As a business owner, it's essential to understand how GST works, how to register for it, and how to ensure compliance with the Canada Revenue Agency (CRA). In this blog, we will explore the basics of GST, including its purpose, how to charge and collect it, and the filing requirements.

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What is GST?

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GST, or Goods and Services Tax, is a value-added tax levied on most goods and services sold in Canada. The standard GST rate is 5%, but depending on the province, it can be combined with the provincial sales tax to form a Harmonized Sales Tax (HST).

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GST in Alberta

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Alberta is unique among Canadian provinces because it does not charge a Provincial Sales Tax (PST). This means that businesses in Alberta only need to collect and remit the 5% GST on taxable goods and services. This simplifies the tax process for Alberta businesses compared to those in provinces with both GST and PST or HST.

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Who Needs to Register for GST?

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Businesses that provide taxable goods and services in Canada and have annual revenues exceeding $30,000 need to register for GST. This threshold applies to most small businesses and freelancers. Even if your business income is below this threshold, you may choose to register voluntarily.

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How to Register for GST 

Registering for GST can be done online through the CRA website, by mail, or by phone. You will need to provide your business number, business name, and details about your business activities. Once registered, you will receive a GST/HST account number, which you will use for all your GST-related transactions.

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Charging and Collecting GST

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Once registered, you must charge GST on taxable goods and services. This includes:

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• Sales of goods

• Services provided

• Rentals and leases

• Rights and licenses

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Certain goods and services are exempt from GST, such as basic groceries, most healthcare services, and educational services. It is important to know which of your products and services are taxable and which are exempt. pt.

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Zero-Rated and Exempt Supplies

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Understanding the difference between zero-rated and exempt supplies is crucial for proper GST management.

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Zero-Rated Supplies:

Zero-rated supplies are taxable, but the GST rate is 0%. This means that you do not charge GST on these supplies, but you can still claim Input Tax Credits (ITCs) for the GST paid on expenses related to these supplies. Examples of zero-rated supplies include:

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• Basic groceries (e.g., bread, milk, vegetables)

• Prescription drugs

• Medical devices (e.g., hearing aids, wheelchairs)

• Exports of goods and services

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Exempt Supplies:

Exempt supplies are not subject to GST, and you cannot claim ITCs for the GST paid on expenses related to these supplies.

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Examples of exempt supplies include:

• Most healthcare services (e.g., dental, medical)

• Educational services (e.g., courses provided by elementary and secondary schools)

• Financial services (e.g., loans, bank fees)

• Residential rent

 

Imports and Exports

Imports:

When you import goods into Canada, GST is typically payable at the border. The GST rate applied is the same as the domestic rate (5%). You can claim ITCs for the GST paid on imported goods if they are used in your commercial activities.

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Exports:

Goods and services exported outside of Canada are generally zero-rated. This means you do not charge GST on these exports, but you can still claim ITCs for the GST paid on expenses related to producing these goods and services.

 

Input Tax Credits (ITCs)

What is an ITC?

An Input Tax Credit (ITC) is a credit that businesses can claim to recover the GST they paid on purchases and expenses related to their commercial activities. ITCs allow businesses to reduce the amount of GST they need to remit to the CRA, effectively lowering their overall tax burden.

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To claim an ITC, the following conditions must be met:

• The goods or services must be purchased or imported for consumption, use, or supply in the course of commercial activities.

• You must have sufficient documentation (e.g., invoices, receipts) to support your ITC claim.

• The amount of GST paid or payable must be clearly indicated on the documentation.

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Examples of expenses eligible for ITCs include:

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• Office supplies

• Inventory for resale

• Professional services (e.g., legal, accounting)

• Equipment and machinery used in business operations

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To maximize your ITCs and ensure compliance, it is important to keep detailed records of all business transactions. This includes:

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• Receipts and invoices for all purchases and expenses

• Records of sales and GST collected

• Documentation supporting the use of goods and services in your business activities

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Good bookkeeping practices are essential for accurately tracking your GST obligations and maximizing your ITCs. This can help you avoid penalties and ensure that you are only paying the GST you owe.

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Filing and Remittance

The frequency of filing GST returns depends on your annual revenue:

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• Annual filers: For businesses with annual revenues of $1.5 million or less.

• Quarterly filers: For businesses with annual revenues between $1.5 million and $6 million.

• Monthly filers: For businesses with annual revenues over $6 million.

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GST returns can be filed online, by mail, or through a tax preparer. You will need to report the GST collected, the GST paid on purchases (ITCs), and remit the difference to the CRA.

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Penalties and Interest

Failure to register, charge, collect, or remit GST can result in penalties and interest. It is essential to maintain accurate records of all transactions and ensure timely filing and remittance to avoid these penalties.

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Conclusion

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​Understanding and managing GST is critical for business compliance and financial health. By registering, accurately charging, collecting, and remitting GST, and claiming ITCs, businesses can stay compliant and avoid penalties. Good bookkeeping practices are vital for keeping track of all transactions and maximizing your ITCs. If you need assistance with GST registration, filing, or any other accounting needs, Naomi Dukart Professional Corporation, CPA, is here to help.

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Feel free to contact us for personalized advice and professional accounting services.​​​​

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