If you’re an Ontario small business owner then HST might be near top of mind with the upcoming HST deadline on October 31, 2014. In our previous two blog articles, we’ve explored how to file and pay HST in Ontario and how the CRA calculates if you owe them or they owe you, but in this article we’re going to step back a bit and consider whether a small business should even collect HST in the first place.
For most businesses it makes sense to register for HST but there are some cases where it might not be worthwhile registering if you’re not required to.
When You’re Required to Register for HST
Before we get started, let’s quickly recap what HST is in Ontario. HST is a 13% tax made up of the 5% federal GST and Ontario’s 8% PST. HST is charged on most products and services although there are some exceptions depending on the products or services being purchased and who is purchasing them.
As soon as your business exceeds $30,000 in revenues in a single tax year you are required to register for and collect HST. If you do not exceed $30,000 in revenue then you do not have to collect HST.
When you do register you have the option of how often to file and remit the HST you collect. Businesses with revenue less than $1.5 million per fiscal year are required to file annually. Businesses with revenue between $1.5 – 6 million a year are required to file quarterly and businesses with revenue exceeding $6 million per fiscal year are required to file monthly. In all cases you can optionally file more frequently than you are required to.
Why You Wouldn’t Collect and Remit HST
If you’re a small business and you don’t really have any cost of goods to run your business then it might not be worthwhile charging your customers HST. Say, for example, you are a part time consultant and the only thing you provide is service work. If you don’t meet the $30,000 per year revenue threshold then it might not be worth the time to register and file for HST, and if your customers are the end consumers then they’ll appreciate the 13% savings of not having to pay HST.
Why You Would Collect and Remit HST
Apart from the type of situation listed above, it’s usually a good idea for businesses to register for HST. As we’ve described in our previous blog posts, HST is a pass through expense – either you pay or are refunded the difference between the amount of HST you collect and the amount you pay. You don’t get to keep the HST you charge your customers as revenue, nor do you really have to pay the HST you’re charged on the products and services you buy as a cost of doing business.
If you’re in the startup phase of your business then registering for HST can provide a significant cost savings. Depending on the type of business you start, you might have significant startup costs, including office furniture, vehicles, equipment and products intended for resale. You’re most likely going to have to pay HST on these purchases (called ITC’s, or input tax credits) and if you aren’t registered then you won’t get this 13% tax back. But if you are registered then you’ll get every penny of the HST you spend back from the CRA. In the startup phase, businesses typically aren’t selling a lot of products and services so the HST they’re collecting isn’t that significant, so they would typically expect a refund. In the startup phase of your small business, every penny – even an HST refund from CRA – helps!
The HST rules governed by the CRA would require most businesses to register for an HST number, but not every business has to. For most small businesses it is worth registering even if you don’t have to as it allows you to recover the HST that you pay on the products and services that you need to run your business.
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Have Your Say
If you are considering whether or not to register for an HST number with CRA, we’d love to hear from you. Tell us what considerations are part of your thinking process. Also, please share this article using the social media share buttons – chances are there are others out there going through the same process!