History
Before the GST, taxes were levied on goods that were manufactured. The service sector in Canada was much smaller than it is today, and the economy was dominated by manufacturing. This tax was also included in the price of goods and was paid by manufacturers. The end consumer did not feel the impact of this tax – much like the excise taxes on tobacco and gasoline that still exist today. As the economy shifted to services in the 1980s, the GST was introduced to tax a wider range of goods at a lower rate. This also meant that overall tax revenues would increase.
GST/HST applies to new goods
The GST and HST are generally levied on new goods that are produced in the economy. For this reason, HST is not levied on resold houses, used cars, and second-hand items. There is a risk that items that are frequently sold will be taxed repeatedly in the same transactions. Although tax revenues might be higher in the short run, the distortion in the economy would also be large, as resale of items would become more expensive and the number of transactions in general would decline. No GST/HST is levied on items that are considered essential to life. This includes food purchased at grocery stores. Food prepared in a restaurant is generally charged GST/HST because it is considered unnecessary. Buying food in bulk is usually exempt from GST/HST, as opposed to buying individual portions. There are also certain items that are exempt from GST/HST, such as mortgages and insurance. Tax Return Agent in Melton
The consumer pays the GST/HST
Many goods are manufactured in multiple stages. Usually, the material is mined or drilled. This material is passed on to a processor who converts it into a form suitable for manufacturing. A product is manufactured, and it may go through several processes before it is finally sold to the end user. The GST/HST is collected on each transaction, but it is refunded to the person who paid it, unless the person paying the GST/HST is the end consumer. This avoids the same item being taxed multiple times at each stage of the manufacturing process. Services can also go through multiple stages if they are provided to businesses in multiple steps before being passed on to a consumer. A business that manufactures something and sells it to another business pays the GST/HST and then claims its refund. When the business completes its GST/HST form, it would enter the sales tax paid as an “input tax credit” (ITC). This would effectively reduce the GST/HST it paid, and the net result would be the amount the business pays to the government.
Exemption for small suppliers
Because tracking these taxes can be time-consuming, the government has allowed smaller businesses or “small suppliers” to avoid tracking the GST/HST. For sales valued at $30,000 or less, the GST/HST does not have to be filed unless you have registered for it. The rules for filing follow in the next paragraph. On sales of $30,000, the GST/HST would be $3,900 if you exclude expenses and use the Ontario rate. Most small businesses have expenses, and some provinces have a lower sales tax rate.
Rules for registration
If you are a business with gross sales of $30,000 or less, you do not have to register to collect GST/HST. If you have sales of less than $30,000 per year and register voluntarily, you must still collect and file the GST/HST even if your sales are less than the threshold. Tax Agent in Craigieburn
Procedure for businesses
If you have registered to collect the GST/HST, you must record all sales where sales tax is included in the price. If the GST/HST is reported separately, you must add up all GST/HST amounts collected in a given period. For most businesses, this period is one year. If your business has high gross sales, the frequency will be greater – it may be quarterly or monthly. You will fill out a GST/HST return showing your gross sales, GST/HST collected, and input tax amounts. The net result would either be positive (you would remit the difference to the government) or negative (you would claim a refund from the CRA). You must maintain the filing until you cancel it due to closing the business, selling the business, bankruptcy, etc.
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