Understanding GST: A Guide for Small Business 

​

Goods and Services Tax (GST) is an important part of operating a business in Canada. Business owners are responsible for determining when GST applies, registering when required, collecting the tax on taxable sales, and remitting it to the Canada Revenue Agency (CRA).

​

Understanding how GST works helps businesses remain compliant while avoiding unexpected tax balances, interest, or penalties. This guide provides an overview of how GST applies to small businesses and the key rules business owners should be aware of.

​

GST Quick Overview

​

• GST rate in Canada is 5%

• GST registration is required once taxable revenues exceed $30,000 in four consecutive calendar quarters 

• Businesses must collect GST on taxable sales once registered

• GST paid on business expenses may be recovered through Input Tax Credits (ITCs)

• GST returns may be filed annually, quarterly, or monthly depending on annual revenue

• GST instalments are required when net GST owing exceeds $3,000 in the previous year​

​​​​

What is GST?

​

GST, or Goods and Services Tax, is a value-added tax applied to most goods and services sold in Canada. The standard GST rate is 5%. In some provinces, GST is combined with provincial sales tax to form the Harmonized Sales Tax (HST). Businesses registered for GST are responsible for:

​

• charging GST on taxable sales
• collecting the tax from customers
• remitting the tax to the CRA
• claiming Input Tax Credits on eligible business expenses

​

GST in Alberta

​

Alberta is unique among Canadian provinces because it does not charge a Provincial Sales Tax (PST) or Harmonized Sales Tax (HST). Businesses operating in Alberta generally only charge 5% GST on taxable goods and services. This simplifies the sales tax system compared to provinces where businesses must manage both federal and provincial sales taxes.

 

​When Do You Have to Charge GST in Canada?

​

Businesses are generally required to register for GST once their taxable revenues exceed $30,000 over four consecutive calendar quarters. This rule is commonly referred to as the small supplier threshold. 

 

Once this threshold is exceeded, the business must register for GST and begin charging the tax on future taxable sales. Some businesses choose to register voluntarily even if their revenues are below $30,000. This may allow them to claim Input Tax Credits on GST paid for business expenses.

​

How to Register for GST ​

​

GST registration can be completed through the Canada Revenue Agency:

​

• online through CRA My Business Account
• by phone
• by submitting a registration form

​

Once registered, the CRA issues a GST/HST program account number associated with the business number. This number must appear on invoices when charging GST.

​

Charging and Collecting GST​

Once registered, businesses must charge GST on taxable goods and services. Common examples include:

​

• Sales of goods

• Services provided

• Rentals and leases

• Rights and licenses granted to customers

​

Certain goods and services are exempt from GST, including many healthcare services, educational services, and financial services. Understanding which supplies are taxable and which are exempt is important for proper GST reporting.

​

Zero-Rated and Exempt Supplies

​

GST rules distinguish between zero-rated supplies and exempt supplies, and the difference is important.

​

Zero-Rated Supplies:

Zero-rated supplies are taxable at 0% GST. Businesses do not charge GST on these sales but can still claim Input Tax Credits for GST paid on related expenses. 

 

Examples include:

​

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

• Prescription drugs

• Certain medical devices (e.g., hearing aids, wheelchairs)

• Exports of goods and services

​

Exempt Supplies:

Exempt supplies are not subject to GST and do not allow businesses to claim Input Tax Credits on related expenses.

​

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 goods are imported into Canada, GST is typically payable at the border at the 5% rate. Businesses may claim Input Tax Credits if the goods are used in commercial activities.

​

Exports:

Most goods and services exported outside of Canada are zero-rated, meaning GST is not charged but ITCs can still be claimed.

 

Input Tax Credits (ITCs)

​

An Input Tax Credit (ITC) allows businesses to recover the GST paid on purchases and expenses related to commercial activities. ITCs reduce the amount of GST that must be remitted to the CRA.

​

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

• The expense must be related to business..

• 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.

​

Examples of expenses eligible for ITCs include:

​

• Office supplies

• Inventory purchases

• Professional services such as legal or accounting fees

• Equipment and machinery used in business operations

​

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

​

Filing and Remittance

​

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

​

• 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.

​

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.

​

GST Instalment Payments

​

Some businesses are required to make GST instalment payments during the year rather than paying the entire balance when the annual return is filed. The CRA generally requires instalments when the net GST owing exceeds $3,000 in the previous year.

​

Instalments help spread GST payments throughout the year and can make it easier for businesses to budget for upcoming tax obligations.​