If you’re a small business owner in Ontario, you probably have had to wrestle with HST. Do you need to charge it? What do you charge HST on? When do you need to remit and how do you go about remitting the HST you have collected? The CRA gets a bit sticky if you’re not collecting, reporting and remitting HST so in this post we cover the top five things every Ontario based small business owner needs to know about HST.
What is HST?
HST stands for Harmonized Sales Tax. It is adopted by the Ontario Ministry of Finance of July 1, 2010 to replace what was a 5% federal goods and services tax (GST) and an 8% provincial sales tax (PST). For details about HST on the Ministry of Finance’s website, click here.
HST varies from province to province. New Brunswick, Nova Scotia, Newfoundland and Labrador, Ontario and Prince Edward Island all have HST but the other provinces and territories have separate GST and PST.
Different provinces have different HST rates. All provinces charge the 5% GST but each province sets its own PST tax rate. Ontario has an 8% PST rate so the total HST is 13% but Nova Scotia has a 10% PST so its HST is 15%. For a full list of HST rates by province, click here. When products and services are supplied across provinces, the rule is that the HST rate to be charged is the province of delivery. So, if an Ontario based business supplies products to a person or business in Nova Scotia, 15% would be charged because the delivery point is Nova Scotia.
Even though HST varies from province to province it is administered by the Canada Revenue Agency. To find more details about HST on the CRA website, click here.
What Does HST Apply To?
HST applies to most products and services that we buy personally or as a business.
There are some exceptions where the 8% portion of HST is not charged, but these apply mostly when people. For example, there can be exemptions for the 8% portion of HST for off-reserve purchases by First Nations people and products like newspapers, books, children’s clothing and diapers.
The CRA has created some exemptions for business not needing to collect HST. “Exempt” supplies typically include some types of real property, health care services, education services, personal care services, legal aid services and financial services including insurance.
Where HST exemptions do affect businesses are in the purchase of vehicles, and typically automobiles. If a vehicle is purchased outside of the province of Ontario where the 8% portion of HST is not charged then when you register the vehicle in Ontario you may need to pay the 8% tax.
Does Your Business Need to Collect HST?
The CRA has also created a “small supplier” exemption for collecting HST. A business qualifies for the “small supplier” exemption if its total revenues from taxable products and services does not exceed $30,000 in a single calendar quarter or over four consecutive calendar quarters.
Most small businesses would not qualify for the “small supplier” exemption so would have to register, collect and remit HST.
The CRA takes HST reporting very seriously and are quick to charge penalties and interest on overdue HST remittances. If you’re not sure if your business needs to register for, collect and report HST please contact us immediately.
How Do I Report and Remit HST?
HST is not a cost on your business, it is simply a pass-through expense. If you are registered for HST then you report the net HST amount (HST collected less HST paid) to the CRA. If you collect more than you pay then you have to remit the balance, if you pay more than you collect then the CRA will pay you the difference.
You can mail the CRA a cheque for your HST remittance or there are several options to pay electronically or at your bank. If your payment value exceeds $50,000 then you cannot mail a cheque, you have to pay electronically or at a bank.
When you remit depends on your company’s total revenue. For most small businesses you would need to report at least annually and usually within 90 days of your year-end. If your total revenues are high enough you may be required to report quarterly.
Even if your revenues don’t require that you report quarterly it is a good idea to. Many small businesses collect more HST than they pay which means that some of the money sitting in your bank account belongs to the government. To help manage your cash flow and manage the finances of your business we suggest that you voluntarily report and remit quarterly even if you don’t have to.
Should My Business Charge HST Even if I Don’t Have To?
Even if your business qualifies for one of the two exemptions listed above it might be worthwhile registering for HST. Even if you don’t charge HST on what you sell you can still claim your input tax credits (HST you pay on what you buy) and get that refunded. This might be a good idea when you first start your business because you might be incurring a lot of expenses in buying office furniture, equipment and supplies to get your business started. If you register for HST then you can get all of the HST you pay on these purchases refunded.
Understanding HST and how it applies to small businesses in Ontario can be a bit tricky. While HST applies to most products and services, there are exemptions and conditions based on the products and services being provided, who they’re being provided to and where they are being provided. While the CRA has requirements for reporting and remitting HST there are good reasons to go above and beyond the CRA’s requirements.
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Have Your Say
If you are trying to wrap your mind around HST or have already wrestled with understanding how it applies to your business, we’d love to hear your thoughts. Tell us what’s on your mind and share your thoughts! Also, please share this article using the social media share buttons – chances are there are others out there dealing with the same issues!