by Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes levied on most goods and services in Canada.
Regulations and Compliance requirements related to GST/HST in Canada:
Registration:
Businesses with worldwide revenues exceeding CAD $30,000 in a calendar quarter or over the past four consecutive calendar quarters are generally required to register for GST/HST purposes. Voluntary registration is also possible for businesses that do not meet the mandatory threshold. Registration is done through the Canada Revenue Agency (CRA).
Taxable Supplies:
Most goods and services supplied in Canada are subject to GST/HST, with some exceptions and zero-rated supplies. Businesses must determine the appropriate GST/HST rate applicable to their supplies based on the province or territory where the supply is made.
Input Tax Credits (ITCs):
Registered businesses are generally entitled to claim input tax credits to recover the GST/HST paid or payable on their purchases and expenses related to their commercial activities. ITCs help reduce the overall GST/HST liability.
Collecting GST/HST:
Registered businesses are required to charge and collect GST/HST on taxable supplies made to their customers. The collected amounts are referred to as output tax.
Reporting and Remittance:
Businesses must file GST/HST returns on a regular basis, usually monthly, quarterly, or annually, depending on their annual taxable supplies. The returns report the total GST/HST collected (output tax) and the total GST/HST paid or payable (input tax). The net amount is remitted to the CRA.
Place of Supply Rules:
The GST/HST rates and rules differ based on the province or territory where the supply is made. The place of supply rules determine the applicable rate and the requirement to charge GST/HST.
Input Tax Restrictions:
Certain expenses and inputs are subject to restrictions, limitations, or exclusions when claiming input tax credits. It is important for businesses to understand the specific rules to ensure compliance and accurate reporting.
Records and Documentation:
Businesses must maintain proper books and records to support their GST/HST reporting, including sales invoices, purchase receipts, and other relevant documents. These records should be kept for at least six years.
GST/HST Audits and Assessments:
The CRA conducts audits and assessments to ensure compliance with GST/HST regulations. It is important for businesses to keep accurate records and be prepared for potential audits.
Voluntary Disclosures:
If a business discovers errors or omissions in its GST/HST reporting, it can make a voluntary disclosure to the CRA. A valid disclosure may result in penalty relief or reduced penalties.
Place of Supply for Services:
The place of supply rules for services can be complex, particularly for cross-border or international transactions. Businesses should understand the rules to determine whether GST/HST applies and at what rate.
Excise Tax on Specific Goods and Services:
Some specific goods and services are subject to additional excise taxes or special rules, such as excise taxes on tobacco, alcohol, and cannabis products.
GST/HST Rebates and Refunds:
Certain individuals and organizations may be eligible for GST/HST rebates or refunds, such as the GST/HST New Housing Rebate, the GST/HST Credit for individuals with low or modest incomes, and GST/HST refunds for visitors to Canada.
GST/HST for Non-Residents:
Non-resident businesses that carry on business in Canada or make taxable supplies in Canada may have specific GST/HST obligations and compliance requirements.
GST/HST Input Tax Credit (ITC) Restrictions: There are certain restrictions on claiming input tax credits (ITCs) for specific expenses. For example, ITCs cannot be claimed for personal or exempt supplies, such as certain financial services, residential rents, or most healthcare services.
GST/HST Place of Supply for Digital Products and Services:
The place of supply rules for digital products and services, including software, digital downloads, streaming services, and online subscriptions, have specific regulations. Businesses must determine the GST/HST treatment based on the residency or location of the customer.
GST/HST for E-commerce and Online Marketplaces:
The CRA has introduced new rules for GST/HST collection on supplies made through e-commerce platforms and online marketplaces. The responsibility for collecting and remitting GST/HST may fall on the platform or the supplier, depending on the circumstances.
GST/HST Compliance for Small Suppliers:
Small suppliers with worldwide revenues below CAD $30,000 in a calendar quarter or over the past four consecutive calendar quarters are not required to register for GST/HST and charge GST/HST on their supplies. However, small suppliers can voluntarily register for GST/HST if they wish to claim input tax credits.
Input Tax Credit (ITC) Documentation Requirements:
To claim ITCs, businesses must have supporting documentation, including valid GST/HST invoices or receipts that meet the CRA’s requirements. The invoices should contain specific information, such as the supplier’s name, GST/HST registration number, and a description of the goods or services.
GST/HST Penalties and Interest:
Non-compliance with GST/HST regulations may result in penalties and interest charges. Penalties can be imposed for late filing, late remittance, or other violations. It is important to meet the filing and remittance deadlines to avoid penalties.
GST/HST Compliance Reviews and Audits:
The CRA may conduct compliance reviews or audits to verify GST/HST compliance. During an audit, businesses will be required to provide supporting documentation and answer questions related to their GST/HST reporting and remittance.
Voluntary Disclosures for GST/HST:
If a business identifies errors or omissions in their GST/HST reporting, they can make a voluntary disclosure to the CRA. A voluntary disclosure can help rectify mistakes and may result in penalty relief or reduced penalties.
GST/HST Quick Method:
The CRA offers a simplified accounting method called the Quick Method for eligible small businesses. This method allows businesses to calculate GST/HST payable based on a predetermined percentage of their total sales, simplifying the calculation process.
GST/HST Public Service Bodies Rebate:
Qualifying non-profit organizations, charities, and public institutions may be eligible to claim a rebate on a portion of the GST/HST they pay on expenses related to their exempt activities.
