Most self-employed individuals in Canada are not required to register for GST/HST immediately because of the small supplier rule. Understanding when registration is required is important, as registering too late can result in owing GST/HST out of pocket, while registering too early can negatively affect cash flow.
You are generally considered a small supplier if all of the following conditions are met:
You are generally considered a small supplier if your total worldwide taxable revenue is $30,000 or less in a single calendar quarter and over the last four consecutive calendar quarters. (Calendar quarter means a period of three months beginning on the first day of January, April, July, or October in each calendar year.)
Please note that charities and public service bodies have a different small supplier threshold and are generally considered small suppliers if their gross revenue does not exceed $250,000.
Linda is a sole proprietor and a website designer residing in Vancouver. Her total worldwide taxable revenue does not exceed the $30,000 threshold. As a result, Linda is considered a small supplier and is not required to register for GST/HST.
However, because she provides taxable services, Linda may voluntarily register for GST/HST if she chooses. If she does so, the effective date of registration would generally be the day she applies for her GST/HST account, or up to 30 days before that date.
Ali is a consultant who incorporated his business two years ago. During the first year of operations, his total taxable revenue was $28,000. However, over the past four consecutive calendar quarters, his taxable revenue has increased to $32,000.
As a result, Ali’s corporation is no longer considered a small supplier and must register for GST/HST. The effective date of registration must be no later than the day of the first taxable supply made after exceeding the threshold. Ali is required to begin charging GST/HST on his taxable services from that effective date forward.
Voluntary registration may make sense if your clients are primarily businesses that can recover the GST/HST charged to them, if you incur a significant amount of GST/HST on your business expenses, or if you expect your taxable revenue to exceed the $30,000 small supplier threshold in the near future.
However, voluntary registration also comes with additional responsibilities. Once registered, you are required to file GST/HST returns on a regular basis, properly track the tax collected and paid, and manage potential cash-flow issues related to remittances. There is also exposure to penalties and interest if filings are late or incorrect.
For these reasons, the decision to register voluntarily should be made carefully and is often best reviewed with a professional.
Registering late for GST/HST can be costly. If the CRA determines that you were required to register at an earlier date, they may back-date your registration to the date you were no longer considered a small supplier.
In this situation, you may be required to remit the GST/HST that should have been collected during that period, along with penalties and interest. In many cases, businesses end up paying this amount out of pocket because the tax was never charged to customers at the time the services were provided.
This is one of the most common and expensive GST/HST issues faced by self-employed individuals and small business owners.
While GST/HST rules can be deceptively simple on the surface, they are complex in practice. A experienced Chartered Professional Accountant (CPA) can help you:
Moreover, if you have already registered late and received a notification from the CRA, an experienced CPA may be able to assist by communicating with the CRA and helping determine the most appropriate approach based on your specific circumstances.
We are an experienced CPA firm that has assisted clients across a wide range of industries with GST/HST planning and compliance. If you are looking for an accountant or would like to book a consultation to review your GST/HST situation or need assistance with filing your GST/HST return , please feel free to contact us.
