Starting and growing a small business can be very exciting but also stressful and overwhelming, especially when it comes to the ins and outs of paying taxes. Small business owners may be unsure, or sometimes unaware, of their responsibilities when it comes to collecting and remitting sales tax to the CRA. Lack of knowledge combined with the complexities related to GST/HST can lead to make mistakes, which may lead to possible penalties and interest.

One of the most common errors for new small business owners when it comes to GST/HST is registration. Many aren’t aware of the requirements set forth by the CRA. Once a business crosses over the $30,000 “small supplier” threshold they must register with the CRA to collect and remit taxes. The timing of when the cross-over occurs dictates how quickly a business must register and begin collecting GST/HST to the CRA.

A business may also be unaware that they must re-register upon incorporation. If a small business sees exponential growth and decides to restructure their business as it better suits their needs, they must register for a new business number and therefore a new GST/HST account as the original one is only associated with the business as a sole-proprietorship.

Another common error is a business’s failure to file and/or pay taxes due on time. Late filing can result in penalties owed, while late or incorrect payments can incur interest charges. Small businesses may find themselves in this situation due to lack of cash flow in the business, or sheer forgetfulness.

Another common error for small businesses is claiming ITCs (input tax credits), correctly. ITC’s allow a business to reduce their tax liability by claiming the tax they have paid for a purchase as an expense. Errors often occur due to improper record keeping, missed ITC claims or claiming credits that aren’t associated with business related purchases.

Lastly, confusion involving the varying tax rates across provinces may cause mistakes when it comes to filing. A small business must charge the applicable sales tax rate associated with the province where they are selling their product to their customer if outside their own province. Complexities may arise when trying to figure the correct sales tax to charge to out of province, or even foreign customers.

Tax Tip: You should also check to see if you qualify to file GST/HST using the “Quick Method”, which could save you significant GST/HST tax dollars in the year. You would still charge the provincial GST/HST rate on your invoices, however would be allowed to remit using a lower set percentage rate based on sales for the period.  This works out better for those businesses qualifying and having many expenses that do not have ITCs, such as salaries, insurance and so on.

 

The above information is of a general nature only and should not be relied upon for specific situations.  We do not endorse the accuracy of the charts on the websites above.  Click here for additional tax accounting services information. 

Call Marlies Y Hendricks, CPA at 416-766-3941 to discuss your best options and set up an appointment.