Grappling With The GST or HST

Another reason that grappling with the GST or HST isn't easy for small businesses is the sheer volume of paperwork involved. When you register, the Canada Revenue Agency (CRA) assigns you a GST reporting period based on your total annual sale of GST taxable goods and services.

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 "Calculating Your Net Tax" (CRA)).

For most businesses, this means an increased bookkeeping or accounting cost, especially if the CRA demands that you file a GST or HST return each quarter. However, if you are not an accountant, financial consultant, or bookkeeper, and your "annual worldwide taxable supplies and those of your associates (including zero-rated supplies) are no more than $200,000 (including GST/HST) in any four consecutive fiscal quarters over the last five fiscal quarters" (CRA), you may use the Quick Method of Accounting to determine the amount of GST you need to remit.

Essentially, the GST Quick Method of Accounting involves estimating your net GST/HST by applying a fixed GST remittance rate to your taxable supplies. (The remittance rate to be applied depends on what kind of business you operate and where.) The advantage of using the Quick Method of Accounting is that it saves you keeping track of the GST/HST you pay or owe on your operating expenses, meal and entertainment expenses and inventory purchases.

While you can estimate your GST or HST remittance, you must file your GST/HST return by the assigned reporting deadline or face tax penalties - even if you had no business transactions during a particular GST filing period.

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. Your GST or HST records should be part of your regular bookkeeping procedures for keeping records of your business expenses.

Canadian versions of accounting software programs such as 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.

As with any other business expenses, you must religiously collect and keep all of your relevant receipts. (Remember, too, that for tax purposes, you must keep all your receipts and records for six years.)

Grappling with the GST can definitely be time-consuming. As a consumer, you have to pay it. As a business person, you may have to collect it and remit it to the Canada Revenue Agency. Why not make sure that you're also getting back as much of the GST or HST that you've paid out as you can by registering for the GST and claiming your GST Input Tax Credits?