The Big Advantage of Voluntary GST Registration
As you read on page one of this article, you don't have to register for the GST in Canada if your business qualifies as a small supplier. But even if you don't have to, you may want to register anyhow because of the big advantage of GST registration - Input Tax Credits.
Input Tax Credits are credits you can claim to recover the GST or HST you paid or owe for goods or services you acquired "in the course of (your) commercial activities" (Canada Revenue Agency).
If you don't register for the GST, you have no way of getting back any of the GST HST you paid out. For most small businesses, the amount of GST paid to acquire supplies and services over the course of a year is considerable, so GST registration makes economic sense.
And tax-wise, Input Tax Credits are "stackable". GST Input Tax Credits do not need to be claimed in the reporting period when the purchases were made. You actually have up to four years from the end of the period when the Input Tax Credit could have first been claimed to file the relevant GST Input Tax Credit in most cases.
Consider too, that as a new GST registrant, you may be able to claim Input Tax Credits for the GST or HST you paid or owe on the goods or inventory you have on hand when you register.
The Rules for Claiming GST Input Tax Credits
The rules for claiming GST Input Tax Credits are very similar to the rules for claiming business expenses on income tax.
According to the Canada Revenue Agency's General Information For GST/HST Registrants' Guide, you may claim Input Tax Credits for operating expenses such as commercial rent, utilities, and office supplies, and for meal and entertainment expenses. You may also claim GST Input Tax Credits for expense reimbursements you pay to your employees or partners. And you can claim Input Tax Credits for capital property as well.
Expenses That Don't Qualify as Input Tax Credits
Some purchases or expenses cannot be used to claim Input tax Credits. The main category of purchases or expenses that can't be used are goods and/or services that you bought or imported for your own use (as opposed to being bought or imported for business consumption).
Some of the other purchases or expenses that don’t qualify are:
- taxable goods and services bought or imported to provide exempt goods and services
- some capital property
- "membership fees or dues to any club whose main purpose is to provide recreation, dining, or sporting facilities" (CRA).
GST Registration
Convinced that you should register now and wondering how? What's the GST Registration Process? provides the phone numbers and addresses you need.
We've looked at the front end of the process (why and how to register for GST HST) and the back end (claiming Input Tax Credits), but what about the middle, collecting and remitting GST HST? Let's take a look at how GST works. Click to continue to the next page...
