Ronika Khanna walks through five GST/HST mistakes Canadian small business owners make. Register once you hit $30,000 in sales over 12 months. Know the place-of-supply rules so you charge the right rate. Claim input tax credits and track everything with accounting software.
Hello everyone. So every business owner, solopreneur, freelancer in Canada must understand their gsthst and if you're in Quebec, your QST obligations. And in my many years as a small business accountant, helping business owners, etc. With their GSTHST, I have compiled a list of some of the more common mistakes that I see that are fairly easy to correct. And in this video I am going to show you what they are and potentially how to avoid them. My name is Ronica Kanna, I am a ca, a CFA and the founder of Montreal Financial. And I encourage you to check out my website and sign up to my newsletter to help you improve your financial literacy, particularly if you're a small business owner. Okay, so let's get started. The first mistake is not registering when you are supposed to register. So the rule for registration for most businesses, with some exceptions, is that once you have reached $30,000 of sales over a 12 month period or over 4 quarters, you are required to register for sales taxes for gst, HST and again QST in Quebec. And almost everything I say will also apply to QST and the mistake, the two mistakes that I see here, number one is, is that people don't even realize that they have to register so they are not tracking their sales. And number two, they think it is over an annual calendar period rather than the last four quarters. And so it is essential that you look at your last four quarters and calculate it on a rolling basis. If you don't register and you file an income tax return, the government, Revenue Canada, Revenue Quebec will see your sales and they can determine if you have over $30,000 in sales. And there is a good chance that you will get a scary letter that tells you that you have to register and potentially imposes some penalties on interest for late filing. So my recommendation to you is to track your revenues, that is your sales and this applies to total sales and to make sure that you do this on a rolling four quarter period.
Mistake number two is charging the wrong GST and or HST rate. It is important to know that the amount of sales tax that you charge is based on the province where your customer or client is located. And these are referred to as a place of supply rules. And again it applies in most cases, unless for example you sell someone a car and they come and pick it up in your province, then you would charge them the sales tax in your province, but for example if you are providing consulting services or freelance web development, or if you are shipping a product to someone, you would charge them the sales tax based on their province. So for example, if you're located in British Columbia and you are providing services or shipping goods to someone in Ontario, you would charge them 13% HST, which is the rate that exists in Ontario. And so it is important to know and understand the rate in each province, especially if you are engaged in interprovincial sales. And also in some cases, if you are providing consultation services, you might not even know where they are located. So it is imperative that you have their province, especially if you were registered for GST and hst.
Mistake number three is not claiming input tax credits. And an input tax credit is the taxes, the GST and HST that you pay on your expenses. And a lot of people, and especially a lot of new business owners don't know that they can actually claim back the sales tax that they pay on their expenses. And to explain this a little bit, sales taxes are a consumption tax, which means they are meant for the final consumer. If you are a business owner and you are selling and buying products from other businesses, those other businesses can claim back the sales tax that they pay on expenses because they are not the final consumer of the goods. So in order to claim your input tax credits, I encourage you to keep receipts and documentation of all of your expenses. This is absolutely essential as in case, in the case of audit, Revenue Canada and Revenue Quebec will want to see your original receipts. A credit card statement often is not enough. And you want to make sure that you have an accounting system, a spreadsheet or accounting software. And I actually have a video on five reasons why you need an accounting system.
Mistake number four is four, filing late. And this means that you are either unaware of your deadline or you actually know your deadline, but you file after the deadline. And it is really important to know your deadlines because the penalties and interest on late filing of GST and HST and QST can be extremely steep. It is important to keep in mind that you are collecting sales taxes on behalf of Revenue Canada and Revenue Quebec and therefore they want their money by the deadline. The deadlines are different depending on whether you are a sole proprietorship or a corporation, and depending on your year end and also depending on whether you are a monthly, quarterly or annual filer. So I encourage everyone to determine what their deadlines are recorded on a calendar, even if you have an accountant, because accountants also miss deadlines and often you are left with responsibility of the penalties and the interest. And also I recommend filing even if you don't owe any taxes. It is actually mandatory that you file a $0 return or sometimes you might have expenses that you want to claim the taxes back on and you will actually in those cases be entit to a refund. And the final mistake is not charging sales taxes even though you are registered. And this is an extremely common misconception that in a year where you might not have $30,000 in sales that you don't have to charge sales taxes. This is wrong if you are registered. Regardless, even if you have a dollar of sales, you do have to charge both gst, HST and qst and if you don't you will be charged interest and penalties again for not reflecting your sales taxes on your return, collecting the amount and reporting it to the government. The one option that you do have is if you expect that your sales will be lower than 30,000 for the foreseeable future then you should de register your account and in that case there are specific forms that need to be filed that you can mail to them to deregister your account. So that basically encompasses five common mistakes with gsthst. There are others, but these are the ones that I thought were notable and important for small businesses owners and solopreneurs to know and understand. So once again I encourage you to visit my website, sign up for my newsletter, there's lots of resources there and I also have a webinar on GSTHST that might be useful to sign up for. I hope this was useful. If you have any questions, don't hesitate to leave them in the comment section and please like and subscribe and I will see you next time. Have a great day.
