GST/HST for Self-Employed and Small Businesses

When you’re self-employed or run a small business, it can be challenging to figure out whether you need to charge taxes to your customers. Here, we’ll guide you through the eligibility requirements and the 5 steps to collect and remit the taxes to the Canada Revenue Agency (CRA).

How GST/HST works for small businesses

Most small businesses in Canada that sell a product or service are required to collect taxes from their customers. There are two types of taxes:

Goods and services tax (GST): This is a 5% tax used in all provinces and territories. In particular, Alberta, British Columbia, Manitoba, Quebec, Saskatchewan, Northwest Territories, Nunavut and Yukon only charge GST. 
Harmonized sales tax (HST): This is a combination of the GST and provincial sales tax (PST). Ontario charges 13% HST, while New Brunswick, Nova Scotia, Prince Edward Island, and Newfoundland and Labrador charge 15%. 

Example: Let’s say you need to purchase printer paper which is $10 before sales tax. A small business that operates in British Columbia will charge you 5% GST, which will total $10.50. However, in Nova Scotia, a small business will apply 15% HST and the same printer paper will cost you $11.50.

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If your business is required to collect GST/HST 

Although most self-employed workers and small businesses are required to collect GST/HST on behalf of the government, not every business needs to. 

To find out if you qualify to register for a GST/HST number, you’ll need to determine the type of supply you sell. It can fall into one of three categories: 

1. Taxable is when GST/HST is collected and remitted to the CRA. With a GST/HST number, you can claim input tax credits (ITCs) for the GST/HST that your business paid to provide goods and services.
2. Zero-rated is when no GST/HST is being collected or remitted. However, as a GST/HST registrant, you can still claim ITCs for the taxes your business paid to make goods and services. For example, prescription drugs or basic groceries are considered zero-rated supplies. 
3. Exempt is when your business does not collect or remit GST, and you cannot claim ITCs for the GST/HST paid for goods and services. GST/HST exemption applies to those who provide medical services, such as a dental office or an optometrist.

5 steps on how to charge and remit GST/HST 

Self-employed individuals and small businesses can follow these five simple steps to manage the GST/HST process efficiently.

Step 1: Determine when you need to register for a GST/HST number  

Your business type and scenario will determine whether you qualify to register for a GST/HST account. Here are the most common situations, which are primarily based on quarterly earnings.

For example, if you’re a contractor who earns $30,000 within three consecutive quarters, you’ll need to charge GST/HST. 

You can visit the Government of Canada’s website for more details about charities, public institutions and non-residents in these specific scenarios.

Income does not exceed the $30,000 threshold within four consecutive quarters

If you’re a GST/HST small supplier, your income does not exceed the small business $30,000 threshold within four consecutive quarters. You do not need to register for a GST/HST number. 

You can volunteer to register for a GST/HST number for businesses to perceive that you earn more than $30,000 and to claim the GST/HST you’ve paid.

Income surpasses the $30,000 threshold within a quarter

If you surpass the $30,000 threshold within a quarter, you’re no longer a small supplier and must register for a GST/HST number.

Income is higher than $30,000 within four consecutive quarters

If you earn $30,000 within four consecutive quarters, you’re no longer a small supplier and must register for a GST/HST number.

Taxi operators or rideshare drivers 

If you're a self-employed taxi or ridesharing driver, you must register and charge GST/HST on fares, regardless of being a small supplier. This applies if you own or lease the vehicle. You need to register for a GST/HST number right from when you offer transportation services.

Step 2: Open your GST/HST account  

Once you’ve figured out (or have decided to volunteer) to register for a GST/HST number, you must apply for a 9-digit business number (BN) first using the Business Registration Online (BRO). Once you’ve received your BN, you can register for your GST/HST account during the same session.

Upon opening your GST/HST account, you’re ready to start charging taxes to your customers. 

Step 3: Charge and collect GST/HST from customers 

To start collecting GST/HST as a self-employed worker and business owner, you’ll need to determine the percentage to charge. This is based on your type of supply and the province/territory where you run your business. 

A good practice is to clearly outline the GST/HST rate being charged on your invoices and receipts, as well as your registration number. Also, it’s important to have organized records of your collected taxes and the amount you need to remit. This makes filing your GST/HST return a smoother process. Keep these records for six years in case the CRA requests to see them. 

Step 4: File a GST/HST return 

After collecting GST/HST from your customers, you’ll need to report it to the CRA by filing a GST/HST return online (except for charities and certain financial institutions). If you don’t file electronically, the CRA may apply a penalty. You’ll need to file based on your reporting period, which could be monthly, quarterly, or annually. 

Step 5: Remit the taxes you collected 

The GST/HST balance for small businesses is usually due when you file your GST/HST return. Don’t be late in remitting the payment, or you may face interest charges or penalties.

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