Category Archives for "Sales Taxes"

Charging PST on Online Sales

By Randall Orser | On-line sales , Sales Taxes , Small Business

If you are a business that does online sales have to collect and remit taxes just the same as if you had a bricks and mortar business.  This means that you will need to charge and remit other province's sales taxes and different rules in different provinces can make this process complicated.  

Businesses need to register as a provincial sales tax vendor with each province where they will be doing business. Unfortunately, there is little that can be done get around this additional paperwork and bookkeeping, except for to limit the provinces where you ship goods, for example if businesses only sell products to consumers in their own province or if they only sell non-taxable goods and services.

Provincial sales taxes vary by province. There is also the goods and services tax and some provinces use the harmonized sales tax which combines the GST with their provincial sales tax.   For businesses selling only within their own province or territory they only need to follow the rules for their province, but for those selling to other provinces they must charge taxes according to the rules in those provinces.  

  • In BC if the business specifically targets customers in BC through advertising or similar means that they are targeting customers in that province and they are therefore expected to collect and remit PST.
  • In Manitoba out of province businesses must register as a vendor if they solicit sales, the orders originate, the goods are used or goods are shipped to that province.
  • In Saskatchewan all businesses selling online order to customers there are expected to collect and remit PST.
  • In Quebec out of province businesses must register before selling goods to residents there.
  • In Alberta, Nunavut and the Yukon there is no PST.
  • New Brunswick, Newfoundland and Labrador, the Northwest Territories, Nova Scotia, Prince Edward Island and Ontario charge the HST.
  • BC, Manitoba, Quebec, and Saskatchewan charge the GST and a PST.


From an article by Susan Ward

How to Close your GST Account with the CRA

By Randall Orser | Sales Taxes , Small Business

There could be a few different reasons why the time may have come for you to close your GST account with the CRA.

  • If your total taxable revenue (before expenses) has dropped below $30,000 in the last four consecutive calendar quarters then you can apply to regain your small supplier status and no longer collect and remit GST.  However, you must have been registered for GST for at least one year before they will close your account.
  • If you sell or close your business
  • If you no longer make taxable supplies
  • If you are in receivership, a receiver appointed by the courts may take control of your existing GST account until the closure of the business, and your GST account will also be closed at that time.
  • If you are filing for bankruptcy you will need to send copies of the court issued bankruptcy documents to the tax services office.
  • If you are merging or amalgamating with another business.  In this case the CRA may either issue a new business number or allow the reuse of the existing business number.
  • If the business is a sole proprietorship and the owner dies, the heirs or agents will be required to close the account and file a final return.
  • If the business is a partnership and one partner leaves or dies.  Depending on the circumstances the existing number may be reused or a new one might be required.

To close your account you need to complete form RC145 Request to Close Business Number Accounts and send it to your tax services office.  You must also make sure that you file any outstanding GST returns for the period up to the date the account is closed and pay any remittances due.  If you are closing the business you are assumed to be disposing of the assets of the business and that you have collected GST on these sales.  You will need to determine the fair market value of these assets and report this on the return.

If you do not close the account the CRA will assume that you are still in business and will expect you to file returns.  If your business is closed or inactive you can file nil returns until your business starts up again, but if you continue to file nil returns for several years the CRA may contact you to ask if you want to close the account.  If you stop filing returns and don't close the account the CRA will require you to file for the missing dates and if you do not respond you can expect to receive a phone call or visit from from a CRA officer.  If your business is still open and you are not filing returns you will be prosecuted under the Excise Tax Act and you will be liable for penalties and interest.

From an article by Susan Ward

What are the Penalties for Filing a Late GST/HST Return?

By Randall Orser | Business , Retail , Sales Taxes

Businesses that have registered to charge and collect GST must file a return to the CRA at intervals determined by the CRA. Depending upon your business income you may have to file monthly, quarterly or annually. If a business misses it's filing deadline it may be subject to penalties.

The CRA says that if a business has a zero balance GST account or it is owed a refund from the CRA then it will not get any late penalties.  If a business does owe a balance and files a late return then late penalties will be applied.  GST penalties are 1% of the balance owed, plus the result of the calculation of 25% of the 1% x the number of months the return is overdue to a maximum of 12 months.

For example:   1% of $20,000  = $200

                        (25% of $200) x  6 (months)    = $300

                        $300 + $200 = $500 total penalties

In addition the CRA will charge interest on any overdue amount equal to the 90 day Treasury bill rate plus 4%.  This also applies if you have been instructed to make instalment payments and you do not pay by the due date.

There are other penalties that you can incur by not filing a GST return on time.  If you receive a demand to file a GST return and do not do so then a penalty of $250 will be charged.  If you fail to file electronically when required to do so you will be charged a penalty of $100 for the first offence and $250 for each instance afterwards.

What happens if you file an incorrect return?

  • If you make a genuine mistake for example forgetting to include an Input Tax Credit you can include it on a subsequent return.  You have up to four years to claim a missing ITC
  • For other errors such as incorrectly reporting the amounts of GST collected or collectible you will have to request an adjustment of the reporting period affected and this can usually be done through your My Business Account
  • If you have deliberately incorrectly reported and wish to correct this at a future date you use the CRA voluntary disclosure program and pay amounts owed and hopefully avoid penalties and prosecution, although filing through this program does not automatically mean that your request will be granted.
  • If you file an inaccurate return you can be subject to a penalty of 5% of the amount plus 1% per month of the difference between the amount you initially reported and the actual amount up to a maximum of 10%.

It is worth also noting that you cannot claim any income tax deduction for penalties or interest that you may have to pay if you file your GST report late. 

From an article by Susan Ward

Which Goods and Services are GST Exempt or Zero Rated?

By Randall Orser | Business , Retail , Sales Taxes

If think that your new business may have to charge GST/HST you need to know the difference between zero rated and exempt goods and services because not all businesses need to charge this tax.

For the customer there is no difference between GST exempt and zero rated goods as in both cases they are not charged the tax.  For businesses there is a difference in how the two classes of goods and services have to be entered onto the GST return.  Normally when completing the return a business can claim input tax credits to recover the GST paid or owed on business purchases and expenses.  

  • For zero rated goods a business does not charge or collect GST but can still claim ITC's on it's GST return.
  • For exempt goods and services the tax is not charged or collected and Input Tax Credits cannot be claimed.

Which goods and services are zero rated?

  • Basic groceries but this does not include items not necessary for dietary needs such as snack foods, liquor, soda and candy.
  • Most fishery products except those used for bait.
  • Farm livestock sold for human consumption, GST is charged on livestock sales not used for human consumption such as horses, dogs, and cats.  Animals such as rabbits and goats will be zero rated if sold for consumption or GST will be charged if they are sold as pets.
  • Farm equipment such as tractors, seeders, planters and processing equipment.
  • Prescription drugs and dispensing fees are zero rated however drugs sold over the counter are subject to GST.  
  • Medical devices such as artificial teeth, walkers, wheelchairs, canes, eyeglasses, contact lenses and orthotics and others are zero rated.
  • Freight transportation services involving the movement of goods from Canada to other countries and vice versa.

Which good and services are exempt?

  • Used residential housing, GST is only charged on new or substantially renovated housing.
  • Residential rental accommodation if equal to or greater than one month duration.
  • Music Lessons
  • Medical and dental services except for procedures deemed to be non healthcare-related such medical reports, disability certificates and cosmetic surgery to enhance someone's appearance.
  • Issuing insurance policies 
  • Educational services leading to a certificate or diploma, upgrade certification or tutoring services for a designated school curriculum.
  • Most goods and services provided by a charity.
  • Financial services such as fees for bank accounts.
  • Legal aid services
  • Day care services for children aged 14 or younger
  • Food and beverages in an educational institution

Some goods and services that are exempt from the federal GST are not exempt at the provincial level in provinces that charge a provincial sales tax so they are subject to the tax.  As each province is different businesses should refer to the exemption list for the province in which they are doing business.  For British Columbia check  PST Exemptions.

From an article by Susan Ward

How to Pay the GST/HST that Your Small Business Owes

By Randall Orser | Business , Sales Taxes

If you are a small business whose total taxable revenue before expenses is $30,000 or less in the last four consecutive calendar quarters or a public service such as a non-profit organization with total tax revenues of less than $50,000 in the last four consecutive calendar quarters you are classified as a GST/HST small supplier and you do not have to charge GST/HST.  That applies unless you are a taxi or limousine operator or a non-resident performer who sell admissions to seminars or other events, who must register for GST no matter how small their income is.

If you do not qualify as a small business then you will need to charge, collect and remit GST.  To start the process you will need to register for a GST account with the CRA.  You will then keep track of all the GST that you charge or pay and complete a GST tax return each quarter or assigned reporting period which can also be monthly or annually depending upon your total taxable supplies of goods and services in the previous fiscal year when you register.

Even if you do not qualify as a small supplier it may be to your advantage to register for the GST.  Though you will be paying GST on the goods and services that you use in the course of your business you will also be able to recover some of the GST that you paid out on business purchases through  Input Tax Credits.

You must submit your GST returns on time according to your reporting period schedule even if you have not conducted any business or collected any GST during that period.  On each report you will show the amount of GST that you charged your customers and the amount of GST that you paid or owe your suppliers.  The difference between these two amounts is the amount of tax you will pay.  Of course it is not as simple as it sounds as you may have GST charged but not paid to you and bad debts adjustments so you may need to refer to   RC4022 - General Information for GST/HST Registrants for help.  

When your form is completed you have a number of ways that you can pay the amount you owe.

  • Pre-authorization - authorize the CRA to take a take a payment from your bank account
  • Make your payment on line or phone it in through your bank's telephone and online banking services, or pay it in person at your bank.
  • E-transfer, credit card or PayPal
  • By cheque through snail mail using the personalized GST return form sent to you by the CRA.
  • Electronically - the CRA encourages all registrants to use electronic GST filing methods through Netfile,  Telefile, Electronic Data Exchange, or GST Internet File Transfer. 
  • CRA My Business Account which also allows you to manage other tax related payments such as payroll, corporate income tax, excise tax.

If you do not File a GST return on time, unless you have a $0 balance you will be subject to penalties. 

From an article by Susan Ward

Is it Time for Your Small Business to Register for the GST/HST?

By Randall Orser | Sales Taxes

This is one question I get asked a lot by new businesses, whether or not they should register for the GST/HST.  I usually say ‘Yes’ so you get used to charging it and your customers get used to paying it.  We’ll talk about what is the GST/HST and when do I register for it.  If you’re incorporated then it’s a definite ‘yes’ to registering as you went to the bother of incorporating, you may as well collect GST/HST.

What is GST/HST?

GST stands for Goods and Services Tax and HST stands for Harmonized Sales Tax. The HST is where a province has merged its provincial sales tax (PST) with the GST. In Ontario, that province merged it’s 8% PST with the GST and made an HST of 13% (the provincial portion was lowered by 2% points). Note, the GST and HST are the same tax, just different percentages, and you remit them at the same time on the same form.

The GST is a tax that applies to the supply of most property and services in Canada. Generally, the HST applies to the same base of property and services as the GST. In some participating provinces, there are point-of-sale rebates equivalent to the provincial part of the HST on certain items.

Although the consumer pays the tax, businesses are generally responsible for collecting and remitting it to the government (Quebec administers its GST/HST). Businesses that are required to have a GST/HST registration number are called registrants. Registrants collect the GST/HST on most of their sales and pay the GST/HST on most purchases they make to operate their business. They can claim an input tax credit, to recover the GST/HST paid or payable on the purchases they use in their commercial activities.

When do I register for GST/HST?

Generally, you don’t have to register if you’re worldwide sales are less than $30,000, unless you want to be able claim for any GST/HST you paid out to suppliers. You should be looking at the past 4 quarters of sales and if at any time it’s coming close to $30,000 then you should register. For example, if you find that your sales are at $30,000 by the end of June, then you need to register; however, if it’s December 28th, then you probably won’t have to register.

If you’re starting a business and expect to make a lot of supply or equipment purchases then you need to register for GST/HST as soon as your business name is approved and registered, and, definitely, before you buy anything for the business. I have seen so many people get excited about their new enterprise that they go crazy buying stuff and then realize they should register for the GST/HST. Of course, once you’ve bought stuff it’s too late, and CRA won’t backdate your GST/HST registration unless you’ve been invoicing customers (you’ll have to prove that you’ve invoiced customers).

There are situations where you don’t register as you’re selling an exempt product/service, such as insurance or a financial planner. In this case, you can’t register, would not charge GST/HST, and cannot claim any input tax credits either.

Another situation when it’s best to register from the start is when you buy an existing business, or part of a business. When a business sells to another business then the businesses can opt to elect that the GST/HST does not apply to the supply of the business. You would file form GST44 - Election Concerning the Acquisition of a Business or Part of a Business and send that in with your first GST/HST return after acquiring the business. If you’re GST/HST return is filed electronically then just send the GST44 into your tax centre.

If you’re mostly business-to-business sales then definitely register as businesses are used to paying GST/HST, and they know that if you’re not charging GST/HST then you’re making less than $30,000 and that you’re a new business. For business to consumer, it’s a bit more difficult as consumers’ hate paying tax and will sometimes go to great lengths not to pay it. In the end, I still think it’s best to register for GST/HST as your goal is to have a business and this makes you look more professional.

What are Input Tax Credits?

By Randall Orser | Business , Sales Taxes , Small Business

Input Tax Credits or (ITC's) are the sum of the GST/HST you paid on legitimate business expenses or the allowable portion of the GST/HST paid.  The CRA refers to these as Input Tax Credits and they used by businesses to recover the GST/HST paid on purchases and expenses related to operating their business.

To use ITC's you must be registered for the GST/HST and then each time you incur an expense or make a purchase related to your business you need to keep your receipt and keep track of these payments in your bookkeeping system.  It is very important that you keep your receipts so that you can prove your claim in case of a CRA audit.

Some of the expenses that you can claim ITC's per the CRA website include: rent, equipment rentals, advertising related expenses such as business cards, flyers and ads, accounting and other professional fees, home office and motor vehicle expenses, office expenses such as stationery, postage, computer and a certain amount of travel including airfare, car rental and hotel rooms.  You can also claim ITC's on Capital expenses including: capital property, machinery and vehicles, furniture and appliances, and improvements to capital property.  See the CRA website for a full list.

According to the CRA you can only claim Input Tax Credits for anything related to your business and the the purchase or expense must be reasonable in quality, nature and cost.  Some of the things that you can't claim for include: some capital property, membership fees or dues to a club which include dining, recreation or sporting facilities (including golf clubs, and fitness clubs) unless you acquire the membership to resell in the course of your business, and taxable goods and services bought or imported to provide exempt (zero rated) goods and services.

From an article by Susan Ward

Ever Wondered how the Government Spends Your Tax Dollars?

By Randall Orser | Business Income Taxes , Personal Income Tax , Retirement , Sales Taxes

Most of us hate paying our taxes and believe that we are paying too much.  Unfortunately, all of us have to chip in so that the federal government can provide the essential public services that we need in our daily lives. 

Torstar Community Brands took a by-the-numbers look at how the federal government spent our tax dollars between 2012 and 2018.  As with most of us it has been a challenge for the government to make ends meet, and an analysis of six years’ worth of financial statements shows that they have spent considerably more than they have taken in.  The gap has widened by $1.2 billion in the last fiscal year.  So, where did our money go?

In the fiscal year 2017-2018 government spending was as follows: 

29.84% went to National defence, crown corporations and other direct programs – including more than 100 departments and Crown corporations.  The government departments included Citizenship and Immigration, Indigenous Services and Infrastructure Canada and cost billions to operate.   

15.30% went to transfers supporting health and other social programs 

15.23% went to benefits for the elderly.  Transfers to elder benefits have been increasing over the years as these benefits programs were originally designed on a presumption of lifespan that is outdated as people are living a lot longer now.  By 2030 one in four Canadians will be a senior compared to one in seven in 2012.  However, the government still benefits from seniors as they pay income tax on their RRSP withdrawals.

14.17% went to other transfer payments 

7.05% went to benefits for children 

6.58% went to public debt charges 

5.93% went to employment insurance

5.91% went to fiscal arrangements and other transfers

Where does this money come from?

In the fiscal year 2017 -2018 sources of income for the government were as follows: 

48.98% came from Personal income taxes 

15.4% came from Corporate income taxes 

11.72% came from Goods and Services Tax

9.37% came from other revenue

6.74% came from EI revenue

2.5% came from non-resident Income tax

1.89% came from other excise taxes and duties 

1.83% came from energy taxes

1.73% came from import customs duties

Canadians are taxed from 15% for those who earn $47,630 or less up to the highest rate of 33% for those earning $210,371 and over.  Although we all like to complain that we pay too much tax compared to other countries, it is worth considering the benefits that we receive from the government that many other countries do not provide to their citizens. 

From an article by Sheila Wang in YorkRegion.com 

Self Employed? Do You Know What Your Tax Obligations Are?

By Randall Orser | Business Income Taxes , Freelancing , Home Based Business , Sales Taxes , Small Business

While self-employment comes with some great benefits, such as a flexible work schedule and freedom to select your work projects, you also have big responsibilities, when it comes to tax time. You are totally responsible for reporting your income and filing and paying your taxes.

It’s a good idea to get familiar with the CRA required self-employment tax forms. When you understand what you have to do, you can organize your finances, keep great records, and make tax filing much easier.

Do you need to file self-employment taxes? You are considered by the CRA to be self-employed if your business is one of the following: 

  • A sole proprietorship
  • An unincorporated partnership
  • An unincorporated limited liability partnership
  • An unincorporated general partnership

Your business income is then part of your personal tax return which means that you will pay the personal income tax rate rather than the corporate rate if your business was incorporated.  

Do you need a T4A?  Unlike when you are employed and receive a T4 from your employer, if you are self-employed as an independent contractor then your clients should send you a T4A slip which will include the dollar amount for each job you do for them.  To figure out your income you need to add the amounts from each slip.

However, you will not always get a T4A especially if you are selling goods direct to customers, they will not give you one. You will then be responsible for keeping accurate records of all of your income from receipts, invoices and any other proof of income.  It is a good idea to use a program such as Quickbooks to keep track and you can run a report to find out your total income for the year.

What is a form T2125 for?  This a Statement of Business or Professional activities which helps you to calculate your gross income as well as your business expenses which you deduct from your income to lower your taxable income.  On the T2125 you will have to provide the following information:

  • Information about your business including a description of your products and services.
  • Income from internet activities such as affiliate sales or ad traffic revenue.
  • Business or professional income.
  • The amount of GST you paid 
  • Costs incurred while making and selling your goods
  • Business expenses
  • Expenses paid for while running your business from home
  • Information about your business partners if you are in a partnership

Once you have completed form T2125 you will know your gross and net income for the year which you will enter on your T1 form. If you run a few businesses, then you will need to fill out a T2125 for each of them.

When Do You Need to Pay GST?  If your business makes more than $30,000 per year then you are required to register for a GST number and collect GST from your customers.  You will submit a GST return either monthly, quarterly, or annually.  

Tax Deadlines  If you are self-employed you will have until June 15th to file your tax return instead of the April 30th deadline.  However, you should still pay any taxes you owe by April 30th.  If you are employed in addition to running your own business, then you will have to file your T1 return by April 30th. Your clients have until the last day of February to send you any T4A slips.

 

Registering Your Business for Sales Tax

By Randall Orser | Sales Taxes

In Canada, there are two different kinds of sales taxes, a goods and services tax or GST and a provincial sales tax or PST.

Some provinces (Ontario, New Brunswick, Newfoundland, Nova Scotia, and PEI) have harmonized their PST with the GST and charge HST (Harmonized Sales Tax). British Columbia, Saskatchewan, Manitoba, and Quebec have not harmonized their PST & GST so it’s two separate taxes. 

You do not have to register for the GST/HST until your sales are over $30,000. However, if you are serious about being in business or have to buy lots of equipment or other goods before starting your business, then register as soon as you have your business registered. This also goes if your sales are mostly business to business. Remember that the HST is just the GST with the PST added onto it; it’s the same tax and is remitted along with any GST you charged.

PST is a tough one as every province has different registration requirements, and on what items they charge PST. Definitely check into the province where your business is located and see if you need to be charging the PST. 


British Columbia and Manitoba require anyone selling into those provinces to register for the PST if you sell regularly into that province. Saskatchewan suggests you register, however, doesn’t require it. Quebec only requires you to register if you have an address there, an employee, or operations, such as production or marketing activities. 

To learn more about registering and charging sales tax visit https://canadabusiness.ca/government/taxes-gst-hst/federal-tax-information/overview-of-charging-and-collecting-sales-tax/