Every year, with every new tax season come some common questions. If you have self-employed income to report—perhaps from work as a sole proprietor, contractor, consultant, small business owner or entrepreneur, or perhaps from a side business you run in addition to your regular part-time or full-time work—you may be wondering this:
As a company that provides cloud-based accounting and bookkeeping services for self-employed individuals and businesses in Ottawa and across Canada, we get this question a lot. While the answer is fairly straightforward, it’s not without nuance, so let’s break it down.
GST/HST is a goods and services tax (or harmonized sales tax in some provinces) that you, as a service provider or business owner, must charge for the goods and services you provide. Your GST/HST number is part of your business number registration with the Canada Revenue Agency. You can register online at Canada.ca, by mail or fax, or by telephone at 1-800-959-5525 (if in Quebec, call Revenue Quebec at 1-800-567-4692).
Remittance deadlines vary depending on the filing period(s) you’ve established for your business. The Canada Revenue Agency has a very handy page on their website that answers the question of when to file. The dates will be different depending on your filing frequency. When you registered your GST/HST account there is an election you can make to file monthly or quarterly. If you don't know if you made that election, then in most cases you would likely be an annual filer. If you want to check what your filing frequency is then you can login to your CRA My Business Account, click on your GST/HST account, and choose View expected and filed returns under the View column (this option will be at about the middle of the page once your browser loads the options for your GST/HST account).
In short, sole proprietors, contractors, consultants, small business owners and entrepreneurs with gross sales or revenues in excess of $30,000 or more in a single quarter or cumulatively over four quarters (a calendar year) must register for a GST/HST account. If your gross revenues are less than that, you are considered a small supplier and do not need register for a GST/HST number.
Please note, there are different GST/HST registration requirements for charities and public institutions, public service bodies, non-residents, and taxi operators and commercial ride-sharing drivers. You can read about these on the CRA website or speak directly with your CPA or accounting professional.
Once you cross the $30,000 threshold, you must register and begin charging GST/HST. If you are just starting your business but are quite certain that you will surpass $30,000 in a single quarter or in the calendar year, you can voluntarily register in advance.
Once registered, it is important that you charge GST/HST on goods and services provided and set this (and additional tax savings) aside in a savings account (you may as well gain some interest while holding the cash). A business bookkeeper can help ensure that your invoices are accurate and can also assist you with budgeting, savings, and cash flow management so that you can meet your tax payment obligations. It is also important that you clearly note your GST/HST account number on all invoices issued.
Let’s say you operate a personal training business, from which you earn about $20,000 a year, alongside an IT consultancy, from which you earn about $25,000 a year, and perhaps a tech blog from which you earn $15,000 a year. Combined, this amounts to a self-employed revenue of $60,000, which means that yes, you must register for a GST/HST account. In short, it is your total gross revenue that counts.
If you are working across several professional sectors, bear in mind that come tax season, these will each require a separate T2125 Statement of Business or Professional Activities form (the self-employed individual in the above example would have to prepare three T2125s). Talk to your business bookkeeper about how to best track and manage your income and expenses so that you present accurate and detailed documentation to your tax accountant.
In this scenario, let’s say you’ve got a full-time job and on the side you run a personal training business that generates an additional $20,000 in gross revenue. While this may push your personal income well above $30,000, you do not need to register for a GST/HST account. Your part-time or full-time work salary is subject to a different set of rules. In the eyes of the CRA, your self-employed activities as a personal trainer make you a small supplier.
You don’t really have a choice whether to register or not; however, to offset the money that you are essentially collecting on behalf of the CRA, you are allowed to claim the sales tax that you incur on a wide variety of expenses related to your business, which in essence reduces the amount of GST/HST you are required to remit to the CRA. In many cases there is a benefit to registering for GST/HST.
At Blueprint, we use cloud-based accounting software and apps to help our business bookkeeping clients track, record, and categorize their business expenses as accurately as possible to ensure that no expense claims are overlooked. Quality record-keeping further enables your tax accountant to file your taxes quickly and efficiently.
Businesses with revenues in excess of $1.5M must file quarterly, and those exceeding $6M must file monthly. Smaller businesses are only required to file annually, but may file on a quarterly or monthly basis should they choose to do so. Again, quality business bookkeeping can be a real asset here in terms of managing your cash flow to ensure that you can make your regular payments on time and in full.
For businesses who have very little in the way of expenses it is often found that electing to file under the Quick Method (or simplified method) can reduce accounting complications and the need to track GST/HST income tax credits and provide a greater reduction to GST/HST payable than had the taxpayer used the regular method of accounting for GST/HST. There are a number of conditions the business must meet in order to be eligible and that is where it is crucial you reach out to your accounting professional to ensure you meet all eligibility requirements. You can read more about the Quick Method of Accounting for GST/HST here on the CRA website.
To learn more about how a bookkeeper can help you to manage your GST/HST collection, budget, savings, expenses, and cash flow, contact Blueprint Accounting.
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