As a new business owner in Canada, business taxes is an area that can often intimidate people. The purpose of this article is to give a broad overview of the most important aspects of tax and to help you identify areas where you may need to consult a specialist like CFO Nik Consulting Services Inc.
The first form of tax that we will talk about is Goods and Services Tax also known as GST. GST is a tax that a vendor charges when they sell goods and services to the public or to other business entities. It is very similar in concept to Value Added Tax or VAT that countries in Europe might have.
In Canada, we also have PST – Provincial Sales Tax which is a sales tax that participating provinces charge in addition to the GST tax on sales. Foe example in Manitoba, they charge PST. And we have HST – Harmonized Sales Tax which is a blended rate between GST and provincial tax. If you go to Ontario, they would charge HST of 13 % on sales.
Fortunately for us in Alberta, we don’t have a provincial sales tax. So as a business owner, you only need to worry about charging the 5% federal GST for any sale made in Alberta. If you plan to sell your products in other provinces of Canada, you will need to charge the appropriate rate of sales tax plus file a sales tax return in those provinces. If you find yourself in that situation, I recommend that you consult a specialist because that can get very messy if you do not know what you are doing. For the simplicity of this article, I will focus on sales made in the province of Alberta only.
How does GST Work ?
In Alberta, if you go to the grocery store and buy a big box of chips for $10, it will cost you $10.50c at the checkout counter.
$10.00 + 10% = $10.50
In Ontario, because they have 13% HST, you will pay $11.30 at the checkout counter.
$10.00 + 13% = $11.30
Who Should Register for GST ?
Any business, whether that is a corporation, sole proprietor or partnership. As soon as your business surpasses $30 000 in worldwide annual sales, you must register for GST. Failure to register your business for GST can result in fines and penalties from the Canada Revenue Agency also known as the CRA. That is the government body that is responsible for administering the tax system in Canada.
If your business makes sales less than $30 000 per financial year, registration for GST is totally voluntary.
How to Register with CRA for a GST Account ?
You can register online on the CRA’s website or you can call CRA and register over the phone. You will need your SIN number, corporate number (if you are registering a corporation) and your contact details such as your telephone number and address.
The CRA will also ask whether you want to file a GST return monthly, quarterly or annually. There are different revenue thresholds on CRA’s website that determine how often a business entity should file their GST return. My suggestion is that you should always choose quarterly filing even if you do not yet fall into this category. The reason is that in practice, I find that businesses who file quarterly have better record-keeping and they do not accidentally spend the GST money that is supposed to be paid to CRA.
