The Goods and Services Tax or GST is a consumption tax that is charged of many products or services sold within Canada, wherever your small business is located. At the mercy of certain exceptions, every business are needed to charge GST, currently at 5%, plus applicable provincial sales taxes. A company effectively works as an agent for Revenue Canada by collecting the taxes and remitting them with a periodic basis. Corporations are also allowed to claim the required taxes paid on expenses incurred that report on their business activities. These are known as Input Tax Credits.
Does Your small business Must Register? Prior to starting virtually any commercial activity in Canada, all businesses must see how the GST and relevant provincial taxes apply to them. Essentially, all companies that sell goods and services in Canada, to make money, are required to charge GST, with the exception of these circumstances:
Estimated sales to the business for 4 consecutive calendar quarters is required to get lower than $30,000. Revenue Canada views these firms as small suppliers and they are generally therefore exempt.
The company activity is GST exempt. Exempt goods and services includes residential land and property, child care services, most medical and health services etc.
Although a smaller supplier, i.e. a company with annual sales lower than $30,000 is not needed to produce GST, in some instances it’s good for do so. Since an enterprise could only claim Input Tax Credits (GST paid on expenses) if they’re registered, many businesses, mainly in the start up phase where expenses exceed sales, could find that they are able to recover a great deal of taxes. How’s that for balanced from 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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