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Introduction to GST/HST

Both the taxation systems; GST and HST are followed in the Canadian tax system. Their application along with their understanding is not as easy as it sounds. The situation gets challenging for both taxpayers and businesses as well.

Let’s get to know more about GST/HST implications:

  1. The goods and services tax: The abbreviation for this GST and its category of a federal tax which is applied to various goods and services. It has different tax slabs which are applied as per the category of the goods sold in Canada. Currently, it’s at a fixed rate of 5% there in the Canadian tax system. 
  2. The harmonised sales tax: This category is a mixture of two tax systems; the GST and the provincial/Territorial sales tax. There are different categories of the HST and it is applied as per the category of the product. It ranges from 13-15% in the Canadian tax system.

Certain laws and rules are applied to businesses and individuals to pay GST/HST. Any business that exceeds the amount of $30,000 in total revenue has to report to the GST and HST and get their business registered to pay the tax. The GST/HST registration process isn’t very difficult and hence needs to be done when it reaches a said limit. Once the tax is collected from the businesses, the total amount is remitted to the government.

For the consumers, they are supposed to pay the tax on certain goods and services but not on all. Many items are made exempt from paying any taxes. Transportation for the public is exempted from paying any taxes, basic groceries don’t pay any taxes and certain drugs are also exempted to pay the taxes.

It is usually a benefit for those whose financial status is moderate or who are underprivileged to receive the HST/GST.

GST/HST implications: what are they?

There are many implications of the GS/HST. These are:

  1. They contribute to increasing the prices of goods and services. 
  2. They contribute to generating revenue for the government from the taxes that are collected by businesses and individuals. Once the revenue is collected, it’s used in the public service programs. 
  3. It has a positive impact on the businesses. Once the businesses incorporate the GST/HST, it comes with additional tasks but eventually helps in making a unified tax system.

Basics of GST/HST

To understand the basics of GST/HST, it’s important to have a sound knowledge of the key aspects as well.

  1. Rates and variations: For the whole nation, GST is set at 5% whereas there is a difference in the HST rate. For the promises of Nova Scotia, New Brunswick, and Edward Island is 15% rate is set and for Ontario, the rate is at 13%.
  2. Tax exemptions: The majority of the purchases are free from tax as it is exempted. Grocery products which are such as eggs, fruits or vegetables, milk, bread, and butter don’t attract any taxes. Medicines or life-saving drugs are exempted from the taxes. Educational services and public transport will not attract any taxes. There are a lot of goods that have a 0% tax levied on them such as clothing, export items, and children’s footwear. 
  3. The impacts of the GST/HST on the businesses or individuals: From the credits received by the GST/HST, individuals who get moderate to low income will benefit from this.
  4. Filing and compliance: If $30,000 in revenue is crossed by the businesses it is suggested that these businesses must get themselves registered with the HST/GST. The process is as simple as it can be; it starts with tax collection, GST/HST filing, and amount remittance to the government. The filing deadlines for GST/HST must be met by the taxpayer by whatever means. 
  5. GST/HST Future: Regarding the implications, there are many ongoing reviews and changes of GST/HST. Few additions and changes have been incorporated whereas few are removed. Hence staying updated on this is essential.

Also Read: What is the GST/HST?

Working with GST/HST on sales

It’s very important to first understand the GST/HST on sales and later how to implement them. Keep the following points in mind and then proceed:

  1. Registration and filing requirements: Any business that has exceeded the total revenue of $30,000 has to get its business registered to the GST/HST. Filing is usually done quarterly or monthly which will depend on the level of the revenue. 
  2. Calculating and collecting GST/HST: The GST rate is set at 5% for all goods and services; however, the HST rate is fixed at 13%-15% depending on the goods and services. 
  3. Managing ITC: To smartly deal with the taxes, you are recommended to get the GST/HST recovered which you have paid on the purchase of businesses. For example offices, marketing material, equipment, etc. Make sure if you are claiming for ITC, the goods should meet the eligibility criteria. Don’t forget to document everything and the maintenance of the documents is also very important. All these steps are important for claiming Input Tax Credits (ITCs).
  4. Record keeping and reporting: It’s important to maintain and manage proper records related to the GST/HST documents. The documents can be related to invoices, receipts, payments, and transaction reports. It’s essential to collectively reconcile the documents and records with the HST/GST return. This way, it will help ensure accuracy and discrepancy as well. Also, it’s recommended to inculcate electronic filing. It helps in bringing a process that is more automated and expedited. Hence, the documentation of GST/HST invoicing requirements holds great importance in the whole process.

Handling GST/HST on purchase

It’s important to know who has to pay the GST/HST in the long run. There are certain exemptions on which those goods are not levied to pay taxes both the GST and the HST. The exceptions are:

  1. Exempted supplies: Many products like basic grocery items and drugs are all exempted from paying taxes. 
  2. Zero-rated supplies: Many food and beverages, drugs, and agricultural products are exempted from paying any taxes. 
  3. Groups and organisations: Many Indian bands and provincial governments are not indebted to pay any taxes on the purchase of goods and services.

5% of GST is applied near the states. It’s also necessary to know the different categories of products that are eligible for ITCs. These can be:

  1. Rent and utilities 
  2. Equipment objects and business supplies
  3. Accommodation expense
  4. Travel
  5. Professional services

If you wish to claim ITC, there should be proper record maintenance and the documents should be properly available at the time of need.

For the goods that are being imported, they need to pay the GST/HST on the border. If the goods are related to any presents or personal belongings then they will not be charged any taxes.

The exported goods are not levied to pay any GST/HST. Also, the GST/HST is not applied to private sales.

GST/HST filing and reporting

Who is supposed to file GST/HST? Any business that has surpassed the total supply amount of $30,000 is restricted from getting registered to GST/HST.

All the importers who have exceeded the commercial import value of more than $1.5 million are subjected to pay GST/HST.

For the reporting of GST/HST, it is recommended to do it monthly or quarterly or you can do it annually as well. To file the GST/HST return, there are only two methods used:

  1. Paper filing 
  2. NETFILE

Strategies for GST/HST optimization

There are some of the best strategies that can be used for the betterment of GST and HST optimization. You can maximise your claims. Reviewing your purchased goods is also a great help.

Another best strategy recommended for optimising these taxes is to always keep a check on the pricing structure. Also, have a clear picture of your inventory management. Consignment agreements should be preferred specifically for high-value goods. Stay up to date for more such notifications and changes that are made over time in the GST/HST. These changes are made on and off as per the new tools and software being used to automate the process.

Lastly, it’s best to bring automation. Use those tools and software that help make your process streamlined and fast as well. E-invoicing is also another great way to avoid paperwork as it gets difficult to manage and comparatively makes the workflows faster.

GST/HST and their process have discrepancies which at one point get difficult to understand. Just when you think it’s getting out of reach or you feel you are stuck, without any further delay call for help. Tax experts and consultants can help things go better in less time. You may have no clue of what’s happening and how you can make things better but these experienced persons know their job and can make a better move for the future of your business.

Conclusion

GST/HST should thoroughly be studied and understood by every individual. It holds great chances of growth and practice which is learned over time.

Keep practising new ideas and concepts as it’s a digital era, and try to include tools and software that help in automation. Seek help when you feel stuck.

Claim ITC with all the documentation and don’t forget to maintain a proper record of documents as it’s helpful in various steps specifically in GST/HST audit preparation.

It’s important to navigate the difficulties of the process because it’s very beneficial for both the business and the consumer at the same time. Once you get hold of certain things such as filing and reporting, it gets quite easy to maximise the ITC claims. Learn and incorporate ways through which you can lessen the tax burden on yourself and your business as well.

Also Read: Know Everything About GST Billing Software

FAQs

  • How do you calculate GST payable from purchases and sales?

To calculate GST payable from purchase and sale, the following formula is to be used:

  1. When GST is added: GST amount = (original cost x GST%)/100

Net price = original cost GST amount

  1. When GST is removed: Original cost – (original cost x(100/100+GST%)

Net price = original cost – GST amount

  • How do you calculate HST from the total?

You can arrive at the HST value by adding the value attained by taking the total price along with the tax to the sale tax rate and dividing the entire value by 1.

  • Is VAT the same as that of HST/GST?

The GST and HST have a direct relationship with VAT. They have their common functionality. There are some differences among them too.

  • What does HST stand for? 

HST otherwise called the harmonized sales tax which is an abbreviation. It is commonly a tax that is levied in Canada’s vicinity.  

  • What is the formula for removing VAT?

The formula to remove VAT from a total amount is

Amount

———— x 100 = Net

   120

  • How do you calculate the total gross profit?

The total gross profit can be calculated by:

Total revenue – cost of the goods sold = Gross profit

Using this formula you can easily find out the gross profit.

  • How are sales calculated?

To calculate sales revenue, multiply the price of the product/service by the products or services sold.

Price of the product x sold products/services = Sales revenue

  • What is a sales calculator?

A sales calculator is any tool that a consumer uses throughout his business journey. This calculator helps people in the business towards the bottom of the sales funnel.

The calculator works in such a way that it collects information from the consumer and makes calculations out of it.

  • What is VAT on sales?

Value-added tax is shortly called VAT which is levied on all those goods and services when a registered business sells it.

  • Is VAT taken from a profit?

The value-added tax is achieved by the business transactions therefore it cannot be said that it’s a tax on profits.

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Amitha Shet Content Writer
Amitha is a creative enthusiast, which gets her into educating the world about things she comprehends. Finance, business, and digital transformation are the topics that she is profoundly interested in so that she can make things simpler for the audience. She is currently a content strategist for a fintech company. She holds a Bachelor of Engineering in Civil Engineering, although finance is a niche that piques her interest to not just educate but to invest and gain experience.

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