This information was found in the following sources:
- Canada Revenue Agency Guide, General Information for GST/HST Registrants
- The Canada Business Network: Overview of charging and collecting sales tax
- Canada Revenue Agency Website
Craft businesses with sales over $30,000 (before expenses) in any single calendar quarter or in the last four consecutive calendar quarters are obliged to charge sales tax. In Newfoundland and Labrador that tax is a 13% harmonized sales tax, or HST. For non-profit businesses, the threshold is $50,000 in sales. If you sell less than that, you don’t have to charge tax.
If you collect sales tax, you can also claim a refund on the sales tax that your business has paid out, for example, on raw materials that you use to make your crafts.
If you have questions or concerns, as a business or a self-employed individual, you can contact the Canada Revenue Agency at 1-800-959-5525 or find information on their website: www.cra-arc.gc.ca/bsnsss/menu-eng.html
1. How does GST/HST work?
Who charges GST/HST?
Businesses that are registered for GST/HST have to collect GST/HST on all taxable goods and services they provide to their customers.
As a craft producer, do I have to register for GST/HST?
You have to register for GST/HST if:
- you provide taxable goods and services in Canada; and
- you are not a small supplier.
You are a small supplier and do not have to register if you meet one of the following conditions:
- you are a sole proprietor and your total revenues (before expenses) from all of your businesses are $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters; or
- you are a partnership or a corporation and your total revenues (before expenses) are $30,000 or less in any single calendar quarter and in the last four consecutive calendar quarters; or
- you are a public service body (charity, non-profit organization, municipality, university, public college, school authority, or hospital authority) and your total revenues from all of the activities of the organization are $50,000 or less in any single calendar quarter and in the last four consecutive calendar quarters.
To begin with, you need to register for a GST/HST account. This is done through the Canada Revenue Agency. A small supplier does not have to register for a GST/HST account. To be considered as such, your business must be a sole proprietorship, partnership or corporation with $30,000 or less in total revenue in the last four consecutive calendar quarters or in any single calendar quarter.
Once you begin collecting GST/HST, you need to inform your customers. Receipts, invoices and contracts are the most common ways of letting clients know what they are being charged. You may also be required to provide specific information on invoices for customers who are also GST/HST registrants, so that they can claim input tax credits.
How do I register?
You can register online with Canada Revenue Agency for a Business Number and a GST/HST account. Before you can register for a GST/HST account, you need a Business Number (BN). If you are incorporated, you may already have a BN and a corporate income tax account. You can set up a BN, a GST/HST account, and any other account you may need by using the online service at www.businessregistration.gc.ca , or by calling Canada Revenue Agency at 1-800-959-5525.
It is the person or business entity that registers for the GST/HST. For example, it is the partnership that registers and not each partner.
If you are a small supplier (your sales are less than $30,000 per year), you can choose to register voluntarily to charge and remit the GST/HST on your sales of goods and services, and you can claim ITCs (input tax credits) for the GST/HST paid or payable on purchases related to these sales. You have to stay registered for at least one year before you can ask to cancel your registration.
If your craft business has a lot of expenses, (if for example, your raw materials are very expensive) you might want to register voluntarily to charge GST/HST in order to claim input tax credits (ITCs) on the GST/HST you have paid on supplies for your business. If you choose not to register, you do not charge the GST/HST and you cannot claim ITCs.
How do I report and send GST/HST to the government?
Once you are registered for GST/HST, Canada Revenue Agency (CRA) will assign you a reporting period and you will file a GST/HST return for each reporting period. Your GST/HST return will show CRA the amount of GST/HST you collected during the reporting period, along with the amount of input tax credits you are claiming.
Reporting periods are the periods of time for which you file your GST/HST returns. When you register for the GST/HST, you are generally assigned an annual reporting period. However, you may choose a more frequent reporting period.
Usually, your fiscal year for GST/HST purposes is the same as your tax year for income tax purposes.
4. Recover the GST/HST paid by your business
Input Tax Credit
Once you are registered, you are able to recover the GST/HST paid on expenses related to your business by claiming an input tax credit (ITC) on your GST/HST return.
You can claim ITCs only for your purchases and expenses that are used in your commercial activities. Generally, businesses can claim 100% on eligible ITCs and non profits can claim 50%. Most charities are limited in the ITCs that they can claim because of the special calculation method called the “net tax calculation for charities” that they must use to complete their GST/HST returns.
To claim an ITC, the expenses or purchases must be reasonable in quality, nature, and cost in relation to the nature of your business.
For more information, consult the Canada Revenue Agency Guide, General Information for GST/HST Registrants, www.cra-arc.gc.ca/E/pub/gp/rc4022/README.html.
5. First Nations
Sales to First Nations customers
You do not charge the GST/HST on sales of goods and services you make to a First Nations customer if you perform the services entirely on a reserve. You also do not charge the GST/HST on sales of goods and services you make to a First Nations band or band-empowered entity for band management.
First Nations craft businesses
As a business owner, you have to register for GST/HST when your revenues from sales of goods and services total more than $30,000 annually. This includes your sales to First Nations customers even if no GST/HST was charged.
Once you have registered for GST/HST, you must collect GST/HST on your taxable sales of goods and services. You may also be able to claim input tax credits for the GST/HST paid on purchases related to your commercial activities.
For more information, see the Canada Revenue Agency Website: www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/frstntns/menu-eng.html
6. Selling to customers outside of the province
Out of province sales
When you sell and ship or deliver taxable goods and services to out-of-province customers, the sales tax that applies in your customer’s province or territory is generally applicable.
International customers (outside of Canada)
If you sell goods and services to international customers, you are not required to collect GST/HST, provided you sell and ship the taxable goods to the customer outside of Canada. If international customers, such as tourists, make purchases in person, in the province, they are required to pay the HST.
For more information visit www.canadabusiness.ca/eng/page/2651/