GST (Goods and Service Tax)
- teakebookkeeping
- Sep 22, 2020
- 3 min read
Updated: Jun 15, 2023
GST is a 5% tax on goods and services that the Government of Canada requires people and businesses to charge on all taxable supplies and services. The people or business' charge GST on the products and services they sell and pay GST on the products and services they purchase. They must track the GST received and paid in order to report these figures to the Government. The difference between these amounts is what they owe to the government or receive back as a refund.
Example: you run a business and sell $1,000 worth of supplies or services during the remittance period. You would add $50.00 GST for a total of $1,050.00 charged to your customers ($1,000.00 X 5% = $50.00, $1,000.00 + $50.00 = $1,050.00, or $1,000.00 X 1.05 = $1,050.00). You purchased $750.00 worth of supplies and services so you can operate your business and sell your supplies and services. Your supplier added $37.50 GST to their selling prices so you paid a total of $787.50 ($750.00 X 5% = $37.50). The difference between the GST you charged (received) and the GST you paid is $12.50 ($50.00 - $37.50 = $12.50) and that is what you would owe the government. If you paid more GST than you receive then you would receive a GST refund.
Did you know that you don't have to charge GST or register for a GST number if you are a Small Supplier. A Small Supplier is a person or business whose gross revenue or income from the sale of taxable supplies or services was equal to or less than $30,000 in a calendar quarter and over the last four consecutive calendar quarters (12 months). In simple terms, if your gross income from the previous 12 months was $30,000 or less and you haven't passed the level of gross revenue in the current calendar quarter (3 consecutive months starting January, April, July, or October) you don't have to register for a GST number or charge your customers GST.
There are supplies and services that are exempt from GST or considered zero-rated so you don't have to charge GST even if you pass the Small Supplier test. The difference between these two GST classifications is:
GST exempt means that you do not charge the GST/HST on these supplies of property and services, and you are generally not entitled to claim ITCs on property and services acquired to provide these supplies.
Zero-rated supplies means GST is applied at a rate of 0%, meaning you don't charge GST, but you may be able to claim GST input tax credits that you have paid for the supplies or services you purchased in the process of operating your business, but usually you can't. If you can't then you don't need to break out the GST from your purchases when tracking your expenses, just include the total cost, including the GST, as your expense.
When and how often you file and remit GST to the government is based on how you set it up when you register. It is usually quarterly or annually depending on your gross revenue levels. Late filing penalties can apply. The penalty is calculated with the following equation: 1% of amount owing + (25% of (1% of amount owing) X number of months overdue up to 12 months). Example: You owe $1,000.00 and are late by 10 months, 1% X $1,000.00 = $10.00, 25% X $10.00 = $2.50, so $10.00 + ($2.50 X 10) = $10.00 + $25.00 = $35.00.
For Charities and Not For Profits organizations the GST rules are quite different. The first and most basic difference is the Small Supplier test amount is $250,000 instead of $30,000.
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