HST and Your Business, What You Need to Know (Part 1).

Most if not all Canadians have had experience paying Harmonized Sales Tax (HST) on a daily basis as it is charged on the majority of goods and services throughout Canada. But how does HST apply to your small business? Maybe your considering starting a business or maybe you have already started your business, and you have questions on how HST applies to your business. Do I need to register for HST ? How much do I charge customers? Do I need to pay tax on purchases made by my business? Is there still GST  This article will help give you insight on HST and your business.

What is HST? - HST is the combination of the Provincial Sales Tax (PST, 5%) and the Goods and Services Tax (GST, 8%) totaling an HST rate of 13%. Only select provinces charge HST (Ontario being on of them), while other provinces charge GST and PST separately, while still totaling 13%. Although the application of GST is similar to that of HST, this article will focus on the application of HST to your business.

HST is the tax charged on the majority of supplies of goods and services made in Canada. For business owners HST is charged and collected from their customers and is also paid on goods and services that they purchase.

How does HST work for your small business, can I claim as an expense to reduce my income taxes payable ? - Business' that are registered to collect HST (see below for Do I have to register for HST?) from their customers are required to file and remit to the CRA the amount of HST they collect. The other side of the HST return allows business's to reduce the amount of HST they pay to CRA by the use of Input Tax Credits (ITC). ITCs represent the HST you pay on goods and services in order to run your business. Simply put, the amount of HST you owe CRA, or the amount of HST they owe you is determined by the difference in the HST you have collected versus the HST you have paid. See illustration below:

Your small business sold $1,000 worth of goods and/or services in 2024. At the HST rate of 13% you collected $130 of HST .

Your small business also incurred $2,500 of expenses in 2024, and paid $325 of HST

HST Paid $325

HST Collected $130

HST Refund $195

So because you paid more HST than you charged and collected you receive and HST refund when you file your HST return. On the other hand if you collected more HST than you paid, you will owe CRA the difference.

Is it in my benefit to have more HST paid that collected so I can receive a refund ? The answer to this is both yes and no. Keep in mind that HST owing is not an expense incurred by you, rather it is charged and paid by your customers. You are simply required to remit on behalf of your customers. On the other hand, ITCs (taxes you have paid) are a result of business expenses that you have paid. So the higher your refund often indicates the higher your expenses, and the expenses are not included as part of your HST refund.

Higher refunds are often an indication of where you are in the life cycle of your business. If your a new business, you will likely have alot of start up expenses and low sales resulting in a higher refund.

Don't focus HST when running your business, focus on maximzing sales and limiting expenses when possible.

Am I required to register for HST ? If your business exceeds $30,000 annually you are required by CRA to register and collect HST. When you first start your business, you will not have prior year sales and as such you are not required to register for HST, but if you anticipate having sales up and above $30,000 for the year you may as well register once your business is established. If you have not nor do you anticipatte exceding $30,000 you may still choose to register for HST so you are able to clami your ITCs and possible get HST you have paid back in the form of a refund. You must register for HST with CRA in oder to claim ITCs.

If I am not required to register, should I register anyways ? If you have sales that are less than $30,000 and you decide not to register, you may not charge HST to your customers. In this case, HST will be tax deductable.

How often am I expected to file / pay a HST return ? HST filing frequency is based on annual income. See revenue thresholds below:

Less than $1.5M - file annually with option to file monthly or quarterly

Between $1.5M - $6M - file quarterly with option to file monthly

Above $6M - Must file monthly

Optional filing frequencies are elected by business's. You may consider a shorter filing frequency such as monthly in order to keep records up to date and reduce the need to gather supporting documentation over a longer period of time.

In Part 2 of our HST discussion we will walk through filing out an HST remittance.

Any further questions ? Leave a comment or contact us directly.