How to get your money back while filing your GST/HST
Did you know that many Canadians miss out on GST/HST refunds? More than 70% of small business owners don’t file their GST/HST returns fully and correctly. So how can you make sure to get your money back while filing your GST/HST returns? While most small businesses know about the value of keeping track of all purchases and sales, many don’t realize the importance of filing their GST/HST returns. Here’s why it’s important to plan your advance payments wisely and what you can do to increase the money you get back by writing off everything you can.
Know your threshold to be GST /HST registrant
You are a small supplier, and the total amount of all revenue before expense from your worldwide taxable suppliers is less than 30,000 Canadian dollars in any single calendar quarter or the last four consecutive calendar quarters; you do not need to register. If you are over 30,000 CAD in any calendar quarter, you ceased to be the small supplier and are deemed to collect GST/ HST immediately. You must register GST/HST with Canada Revenue Agency within 29 days after you are over the threshold.
Example 1 explains what happens if you exceed the 30 000 CAD in a particular calendar quarter:
|First-quarter (Jan 1, 2021, to March 31, 2021)||$2,000.00|
|Second-quarter (Aril 1, 2021 to June 30, 2021)||$10,000.00|
|Third-quarter (July 1, 2021 to Sep 30, 2021)||$38,000.00|
In this case, you are deemed to charge GST/HST on the third quarter when you are over the threshold of 30,000, let’s say Sep 23. You must register GST/HST with Canada Revenue Agency by Oct 22, 2022.
Example 2 explains what happens if you exceed 30,000 at the end of 4 previous quarters:
|First-quarter (Aril 1, 2021 to June 30, 2021)||$2,000.00|
|Second-quarter (July 1, 2021, to Sep 30, 2021)||$10,000.00|
|Third-quarter (Oct 1, 2021, to Dec 31, 2021||$12,000.00|
|Fourth-quarter (Jan 1, 2022, to March 31, 2022)||$8,000.00|
|Total revenue for four consecutive quarters||$32,000.00|
In this case, you exceed the 30,000 CAD limit in the last four conservative quarters. You have to start collecting GST/HST on May 1, 2022. You need to register GST/HST with Canada Revenue Agency before May 30, 2022.
What about GST/HST collected on pre-registration sales?
Some small business owners collect GST/HST even before becoming registrants. Can they keep the GST/HST collected on pocket or mingle it with sales or service revenue? The answer is “no.” Suppose a business has collected GST/HST before registering with Canada Revenue Agency. In that case, they must remit the GST or HST payment from their client to the CRA and apply for GST or HST registration voluntarily. The effective registration date was usually used for to GST/HST registrant. The pre-registration sales and GST/HST collected may be reported on the first period.
The government of Canada will collect the sales tax or services tax from you based on:
- Your reporting periods.
- The amount of GST/HST that you have collected.
- The amount you’re paid for supplies used in your commercial activities.
Who are eligible to claim an input tax credit (ITCs)?
You can only claim ITCs if you are a GST/HST registrant. If you are not a registrant yet, you are not eligible to claim the sales tax you paid for supplies and services used in your commercial activities. However, if you have collected GST/HST before registration, you must remit it to CRA. What can you do if you find yourself in this situation?
If you are a small business owner and have recently registered for GST/HST, you might be able to date back to your GST/HST startup date. If CRA approves your request, you can claim an input tax credit since the approval date.
What happens with purchases or expenses made before the approval date?
One of the main inconveniences for new small business owners is the high start-up costs. Can you deduct the federal payments for your business start-up costs?
If you are a new registrant, you are considered to have received a supply of property that was held immediately before you became a registrant. You may and eligible to claim the input tax credit on these supplies. Suppose inventory, equipment, and real property were purchased before you registered for GST/HST and are ready to use in your commercial activities when you become a GST/HST registrant. In that case, you may claim GST/HST paid on the basic tax content of the property.
You may also claim the GST/HST paid or payable before you became a registrant for services to be supplied to you after you became a registrant. Suppose you pay for rent, royalties, or similar payments to property related to the period you become a registrant. In that case, you can claim tax credit to the extent that the service and property are used in your commercial activities. You can’t claim GST/HST on services and supplies provided to you before you registered, even if you paid that GST/HST after becoming a registrant.
Time limits for claiming input tax credits
The registrant might have an Input tax credit that he didn’t claim when filing the sales tax return for the corresponding period. If so, he can claim those input tax credits on the future sales tax returns. The due date is four years after the end of the reporting period in which the input tax credits can have been first claimed.
For example, you’re a quarter-filer, and you buy furniture for your office from Oct 1, 2020, to Dec 31, 2020. You can claim ITC for those purchases. The due date of your return is Jan 31, 2021. Your last reporting period in which you can claim ITC for the GST/HST you paid on that office furniture is October 1, 2024, to December 31, 2024. The due date for that return is January 31, 2025. That means you can claim the ITC in any return due and file by January 31, 2025.
If you’re looking to improve your business efficiency and reduce operational costs, this income tax refund could be a good place to start. But if you want to maximize the amount of money you get back, you’ll need to work with a professional like ours who knows the ins and outs of the tax system. We’d be happy to help. Book a call with us here