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Taxation / Goods & Services Tax (GST)
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How do I account for the GST?
Whether you're a corporation, sole
proprietorship or partnership, as soon as your revenue reaches $30,000
in a fiscal year you must register and begin charging the GST. There
are choices in how to account for the GST, but these are based on your
revenues and type of activity you carry out. If your gross revenue is
over $500,000 annually, you cannot use any simplified method discussed
here. You must track GST paid separately on all purchases and
expenses. However, if your revenues are under $500,000 you can use the
Simplified method which is multiplying total GST taxable purchases by
6 and then divide by 106 – thus eliminating the need to track the GST
separately. If your gross revenue is under $200,000, consider using
the Quick method. Here you charge your customers the regular 6% but
only remit 4% of your GST inclusive sales for the first $30,000 in
revenue, and 5% for sales over $30,000. |
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GST, or goods and services tax, is a 5%
(Prior to January 1, 2008, 6% and prior to July 1, 2006 - 7%) tax which
is charged on most goods and services in Canada. In Nova Scotia, New
Brunswick and Newfoundland, the GST has been "harmonized" with the
provincial sales tax, to become HST. HST is charged at the rate of
12%.
Any business which is registered to collect GST/HST
will be able to recover any GST/HST paid on purchases made in the
course of their commercial activities, by claiming "input tax credits"
when filing their GST returns.
All businesses which provide taxable goods and
services in Canada must register to collect GST or HST, unless they
are a small supplier. A small supplier is a supplier which has annual
gross revenues of less than $30,000, or less than $50,000 for public
service bodies (colleges, non-profit organizations, charities,
hospitals). However, the calculation of annual revenue is not just
done on a calendar year basis. At the end of each calendar quarter,
total gross revenues for the past 4 consecutive quarters (i.e., for
the past 12 months) should be totaled. If this total exceeds
$30,000, the business must register to start collecting GST.
Businesses which sell GST taxable goods and
services, and are "small suppliers" may voluntarily register to
collect GST. In so doing, they will then be able to recover GST that
they have paid on their purchases. Business which sell only exempt
goods and services may not register to collect GST, and thus may not
claim any input tax credits for GST that they have paid.
Taxable goods and services include items which
are zero-rated. That is, these items are considered taxable, but the
tax rate is zero. These zero-rated items include things such as basic
groceries and prescription drugs. Sales of these items must be
included when calculating whether or not the business has reached the
$30,000 annual threshold for collecting GST.
The CRA web site lists examples of
taxable (including zero-rated) goods and services and
exempt goods and services.
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Easy Methods For GST
Accounting
The choice as to how
to account for the GST is based on your revenues and the
type of activity you carry out.
If your gross revenue
is over $500,000 annually, you cannot use any of the
simplified methods I am going to discuss. In that case:
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Register for the
GST and file your returns quarterly (monthly if your
revenue is over $6 million).
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Payment is due
(i.e.: it must be received) by the last day of the month
following the reporting period. In other words, for the
period January 1 to March 31, 1999, the GST was due by
April 30, 1999. NOTE: You can take your cheque, with
your return to any financial institution - they are
required to process it free of charge.
If your revenues are
under $500,000:
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Register for the
GST and file your returns ANNUALLY.
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Quarterly
installments will be required only if the total amount
payable for the year is over $1,500.
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Payment is due by
the end of the THIRD month following the reporting
period.
FOLLOW THESE TIPS TO
SAVE TIME & $$$
Consider using the
Simplified Method:
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Calculate GST input
tax credits (what you paid out in GST - this reduces the
amount you charged your customers and you send the
difference to Revenue Canada) by multiplying total GST
taxable purchases (including GST, PST and tips on meals)
by 6 and then divide by 106 - there is NO NEED TO TRACK
GST SEPARATELY - This can save a lot of bookkeeping
time).
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NOTE - you can also
add the GST paid on capital asset purchases (i.e.. your
new computer) - remember to do this no matter what
method you use (many people forget this).
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This method is
always better than tracking GST paid separately (The
Long Method) since the factor 6/106 applies to PST
(Provincial Sales Tax) and tips.
If your gross income
is less than $200,000 and you are not a legal, accounting
or financial consulting business, consider using the Quick
Method:
Look at the following
chart and compare it to your last fiscal year income
statement - if your purchases (all costs excluding capital
purchases i.e.. computers, copiers etc.) are greater than
the figure in the column, use of the Quick Method will
result in more tax being paid than the Simplified Method.
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Quick Method Decision
Chart
Taxable Sales
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Taxable Purchases (including GST) break-even
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(GST included)
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Providers of Services
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Retailers
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$200,000
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$51,729
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$128,157
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190,000
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49,371
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121,979
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180,000
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47,014
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115,800
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170,000
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44,657
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109,621
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160,000
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42,300
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130,443
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150,000
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39,943
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97,264
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140,000
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37,586
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91,086
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130,000
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35,229
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84,907
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120,000
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32,871
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78,729
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110,000
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30,514
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72,550
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100,000
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28,157
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66,371
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90,000
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25,800
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60,193
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80,000
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23,443
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54,014
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70,000
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21,086
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47,836
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60,000
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18,729
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41,657
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50,000
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16,371
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35,479
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40,000
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14,014
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29,300
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30,000
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11,657
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23,121
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