GST/HST: When a Small Business Has to Register
The autumn has been busy, and when you add up the quarter you notice the total is higher than you expected. A friend mentions that "you have to charge GST once you pass thirty thousand," and now you wonder whether you already have. The rule is simple to state, but the way it is measured trips up many people.
The small supplier rule
The Canada Revenue Agency says you have to register for a GST/HST account if both of these apply: you are not a small supplier, and you make taxable sales, leases or other supplies in Canada. A small supplier is a business whose revenue from taxable supplies stays at or below C$30,000, and it is measured two ways, not one.
- One calendar quarter. If you go over C$30,000 in a single quarter, you stop being a small supplier on the day of the sale that took you over. You have to charge GST/HST on that very sale and register within 29 days of that date.
- Four quarters in a row. If you go over C$30,000 across the last four (or fewer) consecutive quarters without exceeding it in any single one, you stop being a small supplier at the end of the month after the quarter in which you crossed. You charge from your first sale after that.
Two details catch people out. A calendar quarter is the three months starting on January 1, April 1, July 1 or October 1, which is not necessarily your own accounting year. And the amount is your revenue before expenses, not your profit. The CRA also tells sole proprietors to include worldwide taxable supplies from all their businesses, and those of associates in some cases, and to count zero-rated supplies as well.
A worked example
Say a new business makes C$12,000 from January to March, C$10,000 from April to June and C$9,000 from July to September. No single quarter reaches C$30,000, but the three quarters together are C$31,000. That crosses the threshold in the quarter ending September 30.
Under the CRA's rule, the business stops being a small supplier at the end of the following month, October 31. Its effective date of registration is no later than the day of its first sale after that, and it has to start charging GST/HST on that date and register within 29 days of it. Notice that the business never had a single "big" quarter. The slow accumulation was enough.
Registering before you have to
A small supplier is allowed to register voluntarily if it makes taxable supplies in Canada. Once registered, you charge, collect and remit GST/HST and file returns regularly, and you may be able to claim input tax credits for the GST/HST you paid on business purchases. You also have to stay registered for at least one year before you can cancel, unless you stop your commercial activities. If you do not register, you generally do not charge the tax and you cannot claim those credits.
Whether it makes sense depends on how much you spend on things that carry GST/HST, and on whether your customers can recover the tax themselves. That is a question for your accountant, not a reason to wait until you are over the line.
A few limits of this article
This covers the rule for most businesses. Different tests apply to charities and public service bodies, and some situations require registration even below the threshold, such as taxi and commercial ride-sharing operators. Provincial taxes such as Quebec's QST and some provinces' PST have their own registration rules, so check those separately.
Where Edwin fits
Edwin does not do bookkeeping or tax. What he can do is remember the prices you give him, so when your prices change after you register, you update them in one place instead of in every quote you draft. See how Edwin works.
This is general information, not tax advice. Check the CRA's pages, or ask an accountant, before you decide when to register.