Voluntary GST/HST Registration

A Harmonized Sales Tax (GST/HST) account only needs to be registered when a business reaches $30,000 in sales either in one quarter or over four consecutive quarters. If you are below this threshold, you do not need to register, but if you have voluntarily registered for GST/HST and your sales are below $30,000 you still need to file your returns.

Many individuals make the mistake of not collecting GST/HST and filing returns once they are below $30,000 again. Others stop using their self-employed business and therefore have not collected any GST/HST, but still are required to file nil returns for the period that the GST/HST account was in existence.

Another common scenario is when a self-employed business owner stopped operating a business and kept the GST/HST account active and years later receives a new source of self-employed income that may be well below the GST/HST threshold. However, since the GST/HST account is still active he or she is presumed to have collected the tax anyways!

Here is an example:

THE SCENARIO

Joe has a plumbing business with $50,000 sales a year. He is registered for GST/HST and files an annual return each year.

Joe then joins a plumbing company and works for them as an employee for a number of years and ceases any independent sales. Therefore his only income is employment income.

Joe then gets into teaching guitar on the side and makes $10,000 as a self-employed business. GST/HST does not even cross his mind.

THE DISCUSSION

What Joe should have done is deregister the GST/HST account once he stopped being self-employed. Alternatively, he could have kept the account and filed nil returns each year if he thought he may go into business again.

Joe was not required to collect GST/HST on his guitar lessons because his sales were low. But because he has an active GST/HST account, he was supposed to be collecting 13% GST/HST from his customers. Now when Joe does his personal tax return, his accountant will take the GST/HST off the top as if he properly collected it.

If you have ever opened up a GST/HST account, make sure you are up to date with your filings. If you know you have reported your personal income and GST incorrectly, contact a Chartered Accountant to help resolve your tax matters.