Category Archives for "Sales Taxes"

Is it Time to Register for GST/HST?

By Randall Orser | Sales Taxes

This is one question I get asked a lot by new businesses as to 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’ve 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.

Have You Made Your Tax Instalments This Year?

By Randall Orser | Sales Taxes

You may be a self-employed person, and if you end up owing more than $3,000 in income taxes, then you will have to make instalments the next year. Other than the self-employed person who has no tax taken off their income during the year, there are reasons why you may owe tax come April 30th. This can happen if you earn income from rentals, investments, certain pension payments, or income from more than one job. If you have more than one job, you are only allowed to claim your exemptions on one job; the other jobs you should claim zero (0).

There are two factors to consider when determining if you have to pay tax by instalments: 1) your net tax owing; 2) your province or territory of residence.

You have to pay your income tax by instalments for 2017 if both of the following apply:

  • your net tax owing for 2017 will be above the threshold for your province or territory ($1,800 or $3,000)
  • your net tax owing in either 2016 or 2015 was above the threshold for your province or territory

You do not have to pay your income tax by instalments for 2017 if your net tax owing for 2017 will be $3,000 or less ($1,800 or less for residents of Quebec), even if you received an instalment reminder in 2017.

If you received an instalment reminder that shows an amount to pay, you may have to pay your income tax by instalments.

If your main source of income in 2017 is self-employment income from farming or fishing, you must make an instalment payment if both of the following apply:

  • your net tax owing for 2017 will be above the threshold for your province or territory ($1,800 or $3,000)
  • your net tax owing for 2016 and 2015 was above the threshold for your province or territory ($1,800 or $3,000)

Your province or territory of residence will determine the threshold of net tax owing you will use when determining if you have to pay tax by instalments. If you live in Quebec on December 31 of a year, use a limit of $1,800 of net tax owing. If you live in any other province or territory on December 31 of a year, use a limit of $3,000 of net tax owing.

What is an instalment reminder?

An instalment reminder is sent to help you determine if you have to pay income tax by instalments. The reminder will suggest an amount to pay and list the calculation options.

CRA sends instalment reminders to people who may have to pay tax by instalments:

  • The February reminder is for the March and June payments
  • The August reminder is for the September and December payments

If you only received an August reminder, and the reminder does not mention a March or June 2017 instalment payment, follow the instructions that apply to you:

No-calculation option – Pay the amount shown in box 2 of your reminder for September 15 and December 15.

Prior-year option – Calculate your 2016 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.

Current-year option – Estimate your current-year 2017 net tax owing and add any CPP contributions payable, and any voluntary EI premiums payable. Pay 75% of the total on September 15 and 25% on December 15.

If you received an instalment reminder and you are required to pay instalments but do not comply, you may have interest and penalty charges.

You can also see your instalment reminders online using My Account.

Instalment interest and penalty charges

You will be charged interest if all of the following conditions apply:

  • CRA sends you an instalment reminder in 2017 that shows an amount to pay
  • you must pay by instalment in 2017
  • you did not make instalment payments, or you made payments that were late or you paid less than what you had to pay

CRA charges instalment interest on all late or insufficient instalment payments. Instalment interest is compounded daily at the prescribed interest rate, which can change every three months.

How does CRA determine the interest?

  1. CRA calculates interest on each instalment payment that you should have paid from the day it was due to your balance due date based on the payment option that results in the least amount of interest.
  2. CRA calculates the interest on each instalment you paid for the year starting from the later of the date the payment was made or January 1 up to the balance due date.

Then, they determine the interest you owe by charging the difference between a. and b., if the difference is more than $25.

Instalment penalty

You may have to pay a penalty if your instalment payments are late or less than the required amount. CRA applies this penalty only if your instalment interest charges for 2017 are more than $1,000.

To calculate the penalty, CRA determines which of the following amounts is higher:

  • $1,000
    or
  • 25% of the instalment interest that you would have had to pay if you had not made instalment payments for 2017

Then, CRA subtracts the higher amount from your actual instalment interest charges for 2017. Finally, CRA divides the difference by two and the result is your penalty.

As you can see, it is definitely worth it to make your instalment payments if you get any kind of instalment reminder from CRA. If it’s your first year being self-employed, and you know you’ll owe more than $3,000 come February, for the following year you’ll want to make those instalment payments in March/June/September/December. In the end, paying by instalments does relieve you of that huge bill come April 30th.

Nine Simple Ways to Avoid a Grueling Tax Review

By Randall Orser | Sales Taxes

Undergoing a tax review is one of the most frightening and harrowing experiences any adult can endure.  A tax review probes deep into financial and personal matters, and if errors and omissions are discovered in tax returns, the result can be imprisonment or a fine, possibly both.  More frightening still, the aftermath of tax evasion can be just as harsh for innocent mistakes as serious attempts to defraud the authorities.
So, what can an honest citizen do to prevent a tax review?  For starters:
1.  Take your time completing your accounts and preparing your tax return.  Rushing to meet an imminent submission deadline is a major cause of mistakes and omissions, and subsequent harsh punishment.
2.  Complete your accounts and prepare your tax return when you’re wide-awake and free from distractions.  Children playing noisily in the background, customers demanding your attention, falling asleep at your desk, all can lead to errors and ambiguities and a subsequent visit from the taxman.
3.  When you think your accounts and tax returns are problem free, put all your paperwork to one side, preferably at least four weeks before the final date for submitting tax returns.  A week later, study your figures; check your calculations, correct errors you didn’t spot earlier, enter details you overlooked previously.  Check again two weeks before tax submission deadline, and if all looks good, submit your return right away.
4.  Get a certificate of posting for submissions by post, make a screenshot of returns processed online.  Then when your return goes missing in transit, you can prove you submitted on time, and avoid a potential tax review.
5.  Submit your tax returns on time, every time.  Submitting late might suggest you rushed your submission, and possibly made mistakes.
6.  If you don’t use an accountant, consider getting one, preferably with expertise in your area of business and on good terms with the tax authorities.  Search online for someone with a good reputation for filing submissions on time and without making mistakes, as well as for signs an accountant may have been jailed or expelled from a professional association for fraud or misconduct. Key the name of a potential accountant into the search box at google.com, then study the first three or four pages of search returns where most derogatory entries are likely to be found.
7.  If you submit something unusual in your tax returns, such as a major drop in income or an unusually high expense, explain it in a note accompanying your return or in the appropriate location on your submission form.   The more you tell the taxman, the less likely a review will be opened to determine reasons for gaps and irregularities in your tax return.
8.  If paper filing, prepare your submission on a photocopy of the official tax return form before preparing your final return.  Alternatively, use pencil on the original form so errors and ambiguities can be edited later.  Lots of deletions and amendments to an original form suggest a disorganized individual, and potentially more mistakes for the taxman to find.
Hopefully, you’re electronically filing your return. If so, then review the return before you file and print a copy of the confirmation as proof you filed your return.
9.  Add tips and cash payments, also barter transactions to your declared earnings, so the taxman doesn’t feel obliged to ask about income you may have overlooked or considered tax-free. If doing barter, exchange invoices so you have an audit trail.
For the record, almost every form of income should be declared on your tax return, except income from sales of personal goods.
All this time and effort spent preparing your tax return shows you are an honest and law-abiding citizen, someone who does not deserve special attention from the authorities.