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Grappling With the GST or HST

Part 3: How the GST in Canada Works


Reporting Periods and the GST Return

When you register for the GST in Canada, the Canada Revenue Agency (CRA) assigns you a GST HST reporting period based on your total annual sale of GST taxable goods and services.

This reporting period may be monthly, quarterly or annual. The Canada Revenue Agency will assign you a reporting period based on your total taxable supplies of goods and services in the previous fiscal year when you register for the GST. Depending on what that figure is, you may be able to choose a different optional reporting period.

For each reporting period, you have to prepare and send to the CRA a GST/HST return which shows the amount of GST or HST you charged your customers, and the amount of GST or HST you paid or owe your suppliers. The difference between these two is your net tax. (For more details about situations such as GST charged and not recovered, and bad debt adjustments, see the Calculating Your Net Tax section of RC4022 - General Information for GST/HST Registrants (CRA)).

Wouldn't it be nice if it was as simple as I've just described it? It’s a little more complicated, though, because of Input Tax Credits and the different classes of GST HST goods and services. The goods and services you provide may be GST taxable, GST exempt or GST zero-rated.

GST Taxable Goods and Services

These are the ones that businesses charge GST/HST on and can claim Input Tax Credits for on their GST returns. Most goods and services fall into this category and you charge and collect 5% GST or the appropriate HST on the transaction. (New Brunswick, Newfoundland and Labrador, and Ontario have an HST rate of 13%; Nova Scotia's HST rate is 15% and B.C.'s HST rate is 12%.).

Think of buying/selling a toy, a piece of jewelry, gasoline or a hard drive. Or hotel accommodations or buying or leasing a car. Two goods or services that pertain directly to business and fall into this category that you may not be aware of are franchise fees and advertising (unless the advertising is provided to a non-resident of Canada).

GST Exempt and GST Zero-Rated Goods and Services

As a business, you charge the consumer no GST HST on GST exempt or GST zero-rated goods and services, but the two classes of goods are different when it comes to Input Tax Credits.

With GST exempt goods and services, you do not charge GST/HST and you cannot claim Input Tax Credits.

With GST zero-rated goods and services, you charge 0% GST/HST and you can claim Input Tax Credits.

GST exempt goods and services include child care services, music lessons, many educational services, and used residential housing. For details on these and more examples, see the Canada Revenue Agency's list of GST exempt goods and services in RC4022 - General Information for GST/HST Registrants.

Zero-rated goods and services include basic groceries, prescription drugs, and exports.

Bookkeeping for the GST/HST

To correctly calculate your Input Tax Credits and complete your GST Return, you need to be sure that you not only keep track of how much GST or HST you collect and how much GST or HST you pay, but also keep track of your GST HST by category as well.

Canadian versions of accounting software programs such as Quickbooks and Simply Accounting can simplify keeping track of the GST or HST considerably, because the program will automatically track the GST or HST paid on every transaction and produce a GST/HST report.

Obviously, keeping meticulous records is critical if you're going to stay on top of your GST or HST payments and maximize your GST Input Tax Credits. But you need to do that anyhow for income tax purposes. Keeping your GST or HST records updated should be part of your regular bookkeeping procedures.

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