Items and Services Tax or GST is a consumption tax that is charged on many products or services sold within Canada, wherever your enterprise is located. Be subject to certain exceptions, all businesses must charge GST, currently at 5%, plus applicable provincial sales taxes. A business effectively works as a representative for Revenue Canada by collecting the taxes and remitting them with a periodic basis. Organizations are also permitted claim the taxes paid on expenses incurred that report for their business activities. They are termed as Input Tax Credits.
Does Your Business Have to Register? Just before engaging in any kind of commercial activity in Canada, all business people must decide how the GST and relevant provincial taxes affect them. Essentially, all businesses that sell products and services in Canada, for profit, are needed to charge GST, except in these circumstances:
Estimated sales for the business for 4 consecutive calendar quarters is predicted being lower than $30,000. Revenue Canada views these businesses as small suppliers plus they are therefore exempt.
The business activity is GST exempt. Exempt services and goods includes residential land and property, child care services, most health and medical services etc.
Although a smaller supplier, i.e. a business with annual sales below $30,000 is not needed to produce GST, sometimes it really is beneficial to accomplish that. Since a company is only able to claim Input Tax Credits (GST paid on expenses) should they be registered, many companies, mainly in the set up phase where expenses exceed sales, might find that they are capable of recover a lot of taxes. This has to be balanced up against the potential competitive advantage achieved from not charging the GST, plus the additional administrative costs (hassle) from needing to file returns.
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