Wednesday, 29 June 2016

Getting Clear on GST

One hurdle that most businesses have to contend with is the dreaded GST.

When do you have to apply?

GST is optional as long as your gross revenue (that is your income before expenses) in a single calendar quarter (three months) or in four consecutive calendar quarters (one year) is less than $30,000.00. As soon as your revenue exceeds that amount you owe GST whether you apply or not. You have 29 days after reaching $30,000.00 to apply with the government to avoid any penalties or interest.

There are a couple of thoughts on when you should apply for GST.

Some say that you should apply as soon as you get your business started. You are simply adding GST onto your invoice amount, so it is not costing you anything extra, but it does give you a chance to collect some of the GST you paid on purchases back. If you had a lot of start up costs, like a restaurant, you will want to register for GST to recoup the GST you have paid on the large purchases.

Another reason for applying for the GST early on is that some clients don't want to do business with companies that don't charge GST. I personally have never seen it happen, but I know that it can from others in the industry. Having a GST number can also lend credibility to your company as your customers will not know that you are making less than $30,000.00 in sales.

The other school of thought is that you should wait until you hit the $30,000.00 income amount before you apply. If you are a business that doesn't have many expenses, then you might want to wait to hit the $30,000.00 amount before applying. It can create extra paperwork and will incur penalties if you are not on top of it and remitting on time.

How is GST calculated?

The way that GST is calculated is as follows:
GST Charged on Sales - GST Paid on Purchases = GST Owing/Refund

How do I apply?

You can apply for your GST number on Revenue Canada's Website, by phone 1-800-959-5525, or by completing form RC1 and mailing it into the government. My recommendation is to register online if you are tech savvy or if you are less than confident online, call and speak to someone on the phone. One tip when calling the government to avoid the automated services, press the * key and you will go straight to an operator. You have the right to ask for their employee number so that you have a record of who you spoke to.
GST can be set up to pay Annually, Quarterly, or Monthly. This will depend primarily on your annual sales.

A couple of additional tips regarding the GST
  • Your gross revenue is based upon what has been invoiced during the period and not what has been collected.
  • Sole proprietors owning more than one business must combine the income from all businesses when determining whether they have reached $30,000 in sales.
  • If you are a public service organization, like a charity, you do not have to register until revenues reach $50,000.00.
  • One of the biggest mistakes that business owner's make is thinking that GST is cash flow in your pocket. The GST you collect on your invoices belongs to the government and should always be put aside when invoices are paid until you are due to make your payment. A separate bank account to store money owing to the government can be a useful tool.
  • If you are a business that does not have a lot of expenses, but you qualify for GST, you may want to find out more about the quick method of reporting your GST. Businesses in the service industry are more likely to find themselves in this position.
GST is a big topic and could take pages and pages to go over. If you want to see what the government has to say on GST clink on this posts title and it will take you to Revenue Canada's GST page.