HST Rules for small and medium businesses in Canada

Back to News

HST Rules for small and medium businesses. Disclaimer: This overview is intended as a general summary of the basic HST rules for small and medium business owners. It should not be considered as a professional advise – consult your accountant or other specialist before you make any decisions based on this video!!!

In Canada, the system is pretty complicated and combines GST (Goods and Services Tax), PST (Provincial Sales Tax) and HST (Harmonised Sales Tax). The rate of HST varies from one province to another and the rule of where the goods/services were supplied will determine the rate of HST that should be added. Once a business registered for HST, it must collect HST on all its supplies, and must calculate HST it paid on all it purchases. The balance of these two amounts is either paid to or collected from the CRA. Only registrants can claim back paid HST credit from the CRA.

It is important to understand the difference between 0% rated and exempt businesses. While 0% rated are still considered as registrants (and can claim HST credit), exempt businesses do not participate in the HST system at all and hence are not entitled to claim refunds.

Mandatory registration applies as soon as a business passes $30K in a 12 months period (or a quarter, whichever is earlier). From the CRA perspective a business is considered as “registered” 29 days thereafter. Failure to register does not absolve the business from HST obligations, you still will be assessed by the CRA and all your bills will be considered as inclusive of HST. You will lose 13% of your sales and will pay interest and penalties.

There is also an option for a voluntary registration – this is the kind of registration I suggest everyone to investigate and consider – there are situations where a business might benefit from it. As soon as we register for HST, we become entitled to claim HST refunds. Many beginning businesses that work at loss during the initial months of operations, and spend significant financial resources to purchase equipment and inventory, sign lease, pay contractors and more – they will benefit from HST credit only if they’ve registered BEFORE those expenses were incurred. Please make sure you contact your accountant and discuss it with them before you make the final decision…

Once registered, we must report HST annually, quarterly or monthly, depending on the volume of our sales. We do have an option to report more frequently than the mandatory frequency, but we cannot report less frequently.

The rule of thumb should be – if you approach transaction which is outside the regular scope of your business operations – make sure you discuss the HST topic with your accountant or advisor.