When do you start charging GST?

How much is it?

And, even if you aren’t legally required to, is it a good idea to charge GST anyway?

Those are questions on the minds of many self-employed people, and they’re the topic of this week’s post.

GST basics

GST stands for Goods and Services Tax. It is a federal tax payable on just about any product or service. It is 5% in all provinces and territories.

By law, most businesses have to charge GST to their customers, and the self-employed are no exception. However, not all have to.

The rules say that you don’t have to charge your customers GST if you are a small supplier. The CRA defines a small supplier as a business that doesn’t have a large revenue. Specifically, it is a business that has less than $30,000 in gross revenue in any 4 consecutive calendars quarters. (The four quarters begin January, April, July, and October.)

Let’s say you started your business on August 1, 2020, and in each of the following 3 months you brought in $10,000 in revenue ($10,000 in each of August, September and October). In October, your total revenue for the past 4 quarters would be $30,000 ($0 in Q4 of 2019, $0 in Q1 of 2021, $0 in Q2 of 2021, and $30,000 in Q3 of 2021.

As of October 2021, you would no longer be considered a small supplier, and you would be legally required to start charging your customers GST.

When exactly do I have to start charging GST?

Exactly when you have to start charging depends on how you reached the $30,000 threshold. There are two possible situations.

Situation 1

Your revenue is more than $30,000 in one calendar quarter. In this case, you would have to start charging your customers GST immediately upon going over $30,000. In fact, you have to start charging beginning with the invoice that takes you over.

Situation 2

Your revenue was more than $30,000 over the past 4 quarters.

In this situation you have to start charging your customers GST not with the invoice that took you over the threshold, but beginning on the first day of the second month after the end of the quarter in which your revenue went over $30,000.

Let’s take a look at a couple of examples.

In example 1, the company didn’t earn $30,000 in any one quarter, or over a series of four consecutive quarters. They don’t fall into either situation 1 or situation 2. They do not have to charge their customers GST.

In example 2, the company earned over $30,000 in Q3, so falls under situation 1. They must start charging GST in Q3, beginning with the invoice that took them over $30,000.

Here are a few more examples.

In example 3, the company earned a total of $32,000 over the first two quarters, so falls under situation 2. They must start charging GST in the second month after Q2 ends, so beginning August 1, 2021.

In example 4, the first series of 4 quarters that totals over $30,000 is Q5 ($31,000). This falls under situation 2. They must begin charging GST in the second month after Q5 ends, so beginning May 1, 2022.

GST Registrants

Once you reach the $30,000 threshold, the CRA considers you to be a GST registrant. This means you are registered with them as a business that charges GST (even if you haven’t officially registered yet!). Generally speaking, you are considered to be a registrant as of the date of the invoice that took you over the threshold, and you have 29 days from that date to officially register with the CRA.

You have to then charge GST on all future invoices even if your income goes down and you no longer make $30,000 over 4 quarters. You will have to charge GST for at least a year. After that time, if you once again become a small supplier, you can apply to the CRA for permission to become unregistered.

I’m going to stop there for this week. It’s a big topic, so I’ll finish it off in next week’s article in which I’ll talk about invoicing, remitting the tax you’ve collected, GST tax credits, and best practices.

Cheers,
Tim

Helping you engineer the business of you

Should you be charging GST?