As a small business owner in Canada, it’s crucial to understand the ins and outs of the HST/GST system and how to properly record it in your books. The Harmonized Sales Tax (HST) is a consumption tax that is applied to most goods and services in Ontario, New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island. The Goods and Services Tax (GST) is a federal tax applied to most goods and services in the rest of Canada.
In this blog post, we’ll discuss everything you need to know about HST/GST and how to properly record it in your books.
- Determine if you need to register for HST/GST
If you’re a small business owner in Canada, you may be required to register for HST/GST. The threshold for mandatory registration is $30,000 in annual sales for most businesses, while the threshold for taxi and limousine operators is $30 or more per fare. It’s important to keep track of your sales and regularly review your eligibility for HST/GST registration.
- Understand the difference between input tax credits and output tax
When you’re registered for HST/GST, you’ll need to charge your customers the appropriate tax amount on each sale. This is called output tax. However, you may also be eligible to claim input tax credits for HST/GST paid on business expenses. This means you can reduce the amount of tax you owe by claiming credits for taxes you’ve already paid on business purchases.
- Keep detailed records of HST/GST transactions
To properly record HST/GST in your books, you’ll need to keep detailed records of all HST/GST transactions. This includes invoices, receipts, and bank statements. It’s also important to keep track of the amount of HST/GST you charge your customers and the amount of HST/GST you pay on business expenses.
- Use accounting software to track HST/GST
Using accounting software can help you keep track of HST/GST transactions and ensure that you’re accurately recording and reporting your taxes. Many accounting software programs offer features that make it easy to calculate and record HST/GST, such as automatic tax calculations and tax reports.
- File your HST/GST returns on time
As a registered HST/GST business, you’ll be required to file regular tax returns with the Canada Revenue Agency (CRA). These returns are used to report the amount of HST/GST you’ve collected and paid, as well as any input tax credits you’ve claimed. It’s important to file your returns on time to avoid penalties and interest charges.
In conclusion, understanding HST/GST is crucial for small business owners in Canada. By properly recording and tracking your taxes, you can ensure that you’re complying with the law and avoiding penalties. Remember to keep detailed records, use accounting software, and file your returns on time to stay on top of your HST/GST obligations.