Freelancers and Small Business Owners: When Should You Register for GST/HST?

July 8, 2022

An image of a small business owner reviewing the GST/HST on his invoices

Are you a freelancer or small business owner? Do you provide taxable goods or services and earn money by raising invoices for your customers? Then you should register for Goods and Service Tax (GST) because avoiding GST may come at a cost. In this article, we will discuss how GST works and when you should register for GST? 

How GST works 

GST is a federal tax levied on goods and services purchased in Canada. This means that any goods or services purchased in Canada are taxed, and those purchased abroad are exempt from GST. Harmonized Sales Tax (HST) is a provincial tax on the consumption of goods and services. 

When you provide goods or services, you must charge a GST/HST on the invoice amount as per the applicable rate for that service or product. However, you can claim an input tax credit (ITC) on the GST you pay on any business purchases. Let’s understand this with an example. 

John is a lawnmower in Ontario, and his service is subject to a 13% HST. He earned $500.00 in April and charged an HST of $65.00 ($500.00 x 15%). That brings his total billing to $565. In the same month, he got his mower repaired for $250.00 and paid a 13% HST which comes to $32.50. He can claim this amount in ITC. At the end of the month, he will file GST returns and pay a GST of $32.50 ($65.00-$32.50). 

Why should you register for GST?

To claim ITC, you have to register for GST. The Canada Revenue Agency (CRA) has a minimum threshold for revenue, and if you cross it, GST registration is compulsory. However, avoiding GST won’t help. The CRA will come to know about your undeclared income and charge you a fine of up to 10% on the unreported income. 

Now, do not confuse GST with income tax. GST is charged on revenue and income/corporate tax on the profit after deducting expenses. 

When should you register for GST?

The CRA requires you to register for GST if your gross total revenue in the last four quarters is $30,000 or above. The $30,000.00 revenue includes goods and services exempt from GST, like prescription drugs, child care services, and medical devices (wheelchair, hearing aid). It also has revenue earned from selling goods and services outside Canada. So even though you won’t charge GST to your clients in the above cases, they are calculated in your total revenue, and you can claim the input tax credit on any business expense you incur to deliver goods and services. 

You can register for GST voluntarily before achieving the $30,000.00 threshold. If your business has not reached this revenue threshold and your expenses are high, you would be better off registering for GST. You can claim ITC on the GST you paid on your business purchase. 

For instance, Mary is a freelance video editor, and her clients are based in the United States. As she earns revenue in US$, she need not charge GST to her international clients. Still, she registered for GST. She purchased a new editing tool from a Canadian supplier and paid a GST of $100.00 for the purchase. Because she has a GST number, she can claim $100.00 ITC, and the CRA will refund that amount.  

Exceptions to the GST/HST registration 

There are certain exceptions to GST registration. If your total revenue for the last four quarters is below $30,000.00, you need not register for GST nor charge GST to your clients. But this also means you cannot claim ITC. Other exceptions are zero-rated goods and services, grants, and sales outside Canada. Even if you have a GST number, you need not charge GST to your client. But you can claim ITC. 

Once you register for GST, you have to charge the applicable GST rate on your invoice for all taxable goods and services. You also have to file your monthly, quarterly, and annual GST returns. Do not delay your GST reporting and payments, or the CRA will levy a late fee. Instead, take the help of a tax expert to file your GST to avoid delays and GST calculations. 

Trust the Team at KSSP Partners LLP in Markham to Help You Register for GST/HST for your Business

The decision to register for GST/HST is important, and many essential steps must be taken to ensure the GST/HST registration is set up appropriately. Our team of financial and business consultants at KSSP Partners LLP can help make the process as efficient as possible. Contact us online or by telephone at  289-554-5997 to address your business’ unique circumstances.