Collecting and remitting HST isn’t always straightforward. Not all businesses need to charge HST and there are several ways you can remit it.
Does my business need to charge HST?
If you provide taxable supplies, goods and services, yes. This includes retailers, accountants, real estate agents and restaurants. There are a few exceptions including insurance and loans. Financial planners providing anything that can be considered as investment management services are providing a taxable supply and subject to HST.
Medical and dental professionals don’t charge HST nor do landlords who rent out units long-term. Pharmacists are not subject to HST, but they are also exempt suppliers so they can’t claim HST tax credits. A comprehensive list can be found here.
How much do you charge?
If your business is in Ontario and your clients are in Ontario, you charge 13%.
Although there are some exceptions, for clients who are out of province, you would use the HST rates in that province whether you’re providing goods or services. If you’re unsure about whether this applies to you, please give us a call.
Some businesses are based in Canada, but service clients in the US. If the majority of your clients are south of the border, but your suppliers are in Canada, you can register for an HST number and still claim your input tax credits, which could result in a refund.
Now that we’ve cleared that up:
There are two methods of remitting HST: The regular method and the quick method.
The Regular Method
Using the regular method, you track the amount of HST you’re charging your clients. You also keep track of the HST you’re paying to supplies, contractors, etc. The net of those amounts is what you have to remit to the CRA.
The default for remittance is annual, but depending on how much HST you collect, you can elect to file quarterly. In some capital intensive industries like home building, this can actually be a small source of revenue as you’re paying out more HST than you’re collecting.
The benefit of the regular method? It’s straight-forward and clean and you claim exactly how much HST you’ve collected and paid out.
The Quick Method
In many industries, such as taxable services, you have to charge HST to clients, but you may not have many inputs. For many, it’s just a laptop, internet and cell service and a few office supplies, so you won’t have much to claim.
The CRA allows you to pay 8.8% (Ontario rate) of your total sales (including HST). You can also claim a credit of 1% of the first 30K of eligible sales. While you can’t claim input tax credits for smaller expenses, you can for capital expenditures, such as a computer. I wouldn’t bother claiming anything that cost less than $200 as it can be a headache.
This method isn’t available to everyone, including bookkeepers, tax consulting, financial, legal, accounting, actuarial, public institutions non-profits and municipalities. Though this system works for many of our clients, it may not apply if you do a lot of business outside of Ontario. If this is the case, please get in touch!
There are several benefits to the quick method. One is that you can save a significant amount if you don’t have a lot of HST credits and second is that calculating it is simple. Multiply your billing for the period by 8.8%.
If you have questions about whether you’re eligible for the quick method or anything else HST related, please get in touch.