HST REGISTRATION, COLLECTION, and REPORTING

Summary:

In Ontario, the government requires some businesses to charge HST when they bill for goods or services. In Ontario the rate is 13% which combines a federal rate of 5% and an Ontario rate of 8%.  

If you earn business revenue you are required to register and charge HST unless you are a “small supplier”.  You’re a small supplier unless your revenue is more than $30,000 over a 12-month period. Some goods and services are exempt and not included in the $30,000 threshold. Certain other goods and services are not exempt in calculating the threshold, but the tax rate you charge is 0% instead of 13%.

If you’re registered you have to file an HST return each year. The return reports the amount of HST collected, and the amount of HST you paid for business expenses. If the HST you collected is greater than the HST you paid, then you remit the excess to the CRA. If, on the other hand, the HST you paid is greater than the HST you collected, then you’ll receive a refund of the difference.

Do you need to register? 

You need to register unless you are a small supplier. You are a small supplier if your business revenue, before deducting expenses, is $30,000 or less in any single calendar quarter or in the last four consecutive calendar quarters. A quarter is a period of 3 months starting in January, April, July, and October.

Here are a couple examples:

• if you earned $8,000 in the current quarter and $8,000 in each of the prior three quarters, the total is $32,000 and registration is required.
• If you earned $32,000 in the current quarter, registration is required.

When do you have to register?

If your revenue is not more than $30,000 in any one quarter, but reaches $30,000 over four consecutive quarters, then you should register and start collecting HST by no later than the beginning of the second month following the fourth quarter.

• For example, suppose the $30,000 mark was reached in August. The end of the quarter is September 30th. The second month following the end of the quarter is November. Therefore you should be registered and start collecting by November 1st.

If your revenue is more than $30,000 in a single quarter, you should register and start collecting HST by the day of the sale that made you go over $30,000.

• For example, suppose that starting in January, you charged a customer $10,000 in February and then another customer $21,000 on March 23rd. You should be registered by March 23rd and charge your customer HST on the $21,000 transaction.

CRA Guide T4022 provides a fuller explanation, with examples.

Technically, each of the registration dates given in the above examples is an ‘effective date of registration’. The CRA allows a business to actually register up to 29 days after the effective date of registration. However, regardless of when actual registration happens, a business is required to collect HST starting the effective date of registration.  If you fail to collect HST, you are nonetheless still required to account for it, as if you collected it, when you do your HST return. This may mean you have to pay HST to the CRA out of your own pocket.

Exempt Supplies:

When determining if you have to register, revenue from the supply of certain goods and services is exempt, i.e. not counted as part of the $30,000 registration threshold.  If you become registered, HST is not charged on exempt goods and services.

Exempt supplies includes:

• child care services if less than 24 hours per day
• tutoring someone in a course approved for credit or that follows a curriculum designated by a school authority
• music lessons.

Zero-rated Supplies:

The supply of some goods and services has an HST rate of 0%, and are said to be “zero-rated”. Although you don’t charge HST on zero-rated supplies, revenue from zero-rated supplies is included in the $30,000 registration threshold.

For example, if within a period of four quarters you supplied $2,000 of exempt supplies, $7,000 of zero-rated supplies, and $24,000 of other supplies, the total revenue for determining the obligation to register is $7,000 + $24,000 = $31,000. Since the amount is above $30,000 you are not a small supplier and the requirement to register is triggered.

Zero-rated supplies are listed in Schedule VI of the Excise Tax Act and include:

• basic groceries
• most prescription drugs
• medical devices
• exported goods
• intangible personal property supplied to non-residents who are not registered for GST/HST
• services provided to non-residents of Canada

How do you register:

Registration can be done through your CRA account, or in writing.^[1] Upon registering you will be issued a 9-digit business number (if you don’t already have one) and a GST/HST program number starting with RT.  So the format of a full number is: 123456789RT0001.

Once registered, when you log in to your CRA account, you will see the option to select your business account.

Can I register if I’m a small supplier?

Yes you can register, and it can make sense to do so if you have significant business expenes and your customers are unlikely to be economically affected by the HST.  You can then recover the HST you paid on the business expenses.

For example, if your taxable billings are $20,000 and you had taxable expenses of $5,000 then you will charge $2,600 HST to your customers and pay $650 HST on expenses. You will need to remit to the CRA the difference of $1,950 and therefore you keep $650. If your customers are registered for HST, they can claim the $650 on their HST returns and so they will not be negatively affected.    .

Completing a HST return using regular method:

A return can be completed online through your CRA business account. Steps:

• Log into your CRA account
• Select your business account, and then select your GST/HST account (probably RT0001)
• Select File a Return and then follow the steps as instructed

If you are using the regular method:

• Line 101: enter your total revenue excluding HST (include zero-rated revenue)
• Line 103: enter total HST you collected (including amounts you should have collected)
• Line 106: enter total HST you paid on business expenses (both current and capital), which is called “input tax credits”.

Notes about Line 106 - Input tax credits:

• if you supplied exempt goods or services, for example music lessons, then you don’t include HST paid on expenses that relate to those exempt supplies.
• You can include HST paid on expenses relating to zero-related supplies.
• for most capital expenses, if you use the item primarily for your business (more than 50%) then you can include all of the HST paid for the item. Otherwise, don’t inlcude any of the HST.
• For a passenger vehicle the rule is different: If the car is used for business 90% or more then you can include all the HST (subject to the passenger-vehicle capital-cost limitation). If the car is used for business 10% or less than you cannot claim HST. If between 10% and 90%, you can claim HST based on the CCA for the vehicle.
• You can include HST you did not claim in the prior four years. You can elect to carryforward HST to a future year, up to four years.

Completing a HST return using the Quick Method: 

Despite its name, this method is typically not quicker to use than the regular method, and it’s more complicated.

If you elected to use the Quick Method, the calculation of the amount you remit to the CRA is as follows:

[Total sales includes HST] x 8.8% - [Input Tax Credits on capital items] - [1% x total sales up to $30,000]

Example 1: Suppose sales are $20,000 and you collected 13% of that, $2,600, and you have no capital expenses. The remittance to the CRA is $22,600 x 8.8% - (22,600 * 1%) = $1,762.  

Example 2: Suppose sales are $50,000 and you collected 13% of that, $6,500, and you have no capital expenses. The remittance to the CRA is $56,500 x 8.8% - (30,000 * 1%) =  $4,672.

As the example shows, when using the Quick Method you don’t have to know or calculate the actual HST you paid on expenses. The Quick Method can make sense for a business that has low expenses. In Example 1 above, if you had no expenses and used the regular method, you would have to remit $2,600 to the CRA, compared to the Quick Method amount of $1,762.

You can oly use the Quick Method if you elected to use it in advance. The election is made online on your CRA business account. The election has to be made no later than April 1st of the tax year. For example if you want to use the Quick Method for the 2026 tax year, you must make an election to use it by April 1st, 2026. In the next or some future year, you can make an election to switch back to the regular method.

If you have zero-rated sales, then the ‘total sales’ used for the remittance formula should only inlcude the non-zero-rated sales. For example, if you had billings of $10,000 for which you charged HST, and a further $5,000 of billings which were zero-rated and for which you did not charge HST, then the remittance amount is $11,300 x 8.8% - (1 x $11,300) = $881

The HST return is completed as follows:

• Line 101: Enter total revenue including HST (but excluding zero-rated revenue)
• Line 103: Enter 8.8% x Line 101
• Line 106: Enter HST paid on capital expense items such as computers and vehicles
• Line 107: Enter 1% x (Line 101 or $30,000, whichever is less)

The above entries will generate automatic calculations for boxes 105, 108, 109, and 114 or 115.

Choice of Method changes how T2125 is completed:

When the Usual Method is used, all expenses entered in T2125 should not include HST.

If the Quick Method is used, then do the following when completing the T2125:^[2]

• Boxes 3A, 3B and 3C are completed the same for both methods
• Box 3D: Enter HST paid (same as Line 3B)
• Box 3E: Enter 8.8% x (total revenue including HST, but excluding zero-rated revenue). This will be the same number as appears on Line 103 of the HST return.
• For Other Income (Line 8230), enter the amount from Line 107 of HST return.
• Current expenses: include HST
• Capital expenses: don’t include HST

This is illustrated with a couple examples:

Example 1:

• revenue was $20,000 plus $2,600 HST, and none of the supplies was zero-rated
• current expenses, for example advertising expenses, were $1,000 plus $130 HST
• no capital expenses

Regular Method:

The HST return would show a remittance required of $2,470:

The T2125 would show net business income of $19,000:

Quick Method:

The HST return would show a remittance required of $1,762:

The T2125 would show net business income of $19,481:^[3]

Comparison of regular and quick methods:

In this example, by using the Regular Method, the HST remittance is $702 less. However, note that income is $537 higher, potentially resulting in slightly higher tax, and higher CPP contributions, although possibly offset by a higher Canada Workers Benefit. Overall in this example, using the Quick Method is financially beneficial.

Example 2:

In this example there are zero-rated supplies and capital expenses:

• Revenue from regular sales: $10,000 plus $1,300 HST
• Revenue from zero-rated sales: $5,000, no HST
• Current expense: advertising related to zero-related sales, $1,000 plus $130 HST
• Current expense: office expenses relating to all sales: $1,000 plus $130 HST
• Capital expenses: computer, $2,000 plus $260 HST, used for all sales (used 75% for business)

Regular Method:

The HST return would show a remittance required of $780:

The T2125 would show net business income of $11,000:

Quick Method:

The HST return would show a remittance required of $621.40:

The T2125 would show net business income of $11,158.60:

Calculating portion of amount that is HST:

If an income or expense includes HST and you need the breakdown, it is easy to calculate:

HST portion = amount x 13 / 113.

For example if an amount is $100 including HST, the HST amount is $100 x 13 / 113 =  $11.50. The amount prior to adding HST is $100 - $11.50 = $88.50.

Due dates for payment and filing of return:

If you are required to remit HST to the CRA it must be paid by April 30th to avoid a penalty.  The HST return must be filed by June 15th to avoid a penalty.

If you are registered, a return must be filed even if you conducted no business in the year and did not collect any HST. However there is no penalty.

If the CRA sends a letter or communication demanding to file a return, failure to file will result in a $250 penalty.

Late filing can affect personal income tax:

If you file your personal income tax return and are entitled to a tax refund, but haven’t yet filed your HST return, the CRA maywithhold your refund until your HST return is filed.

Duty to inform customers that you are charging HST:

You have to inform your customer/client that you are charging HST, and the rate charged (13%).  You don’t have to break out the HST, but it is good practice to do so.

Expense Records:

The Excise Tax Act states that you cannot claim an input tax credit unless you have supporting documents with prescribed information.^[4]  This requirement is mandatory and can be strickly enforced.^[5] However, the CRA has the discretion to waive strict requirements.^[6] The supporting documentation can be something other than an invoice and doesn’t have to be contained in a single document.^[7]

A regulation under the Act sets out the required information:^[8]

No matter what the expense amount, the supporting documents must show:

• the supplier’s business name
• invoice date, or if there is no invoice the date when the HST was paid/payable
• total amount paid/payable

If the expense amount is over $100 the documents must also show:

• the amount of HST charged or a statement that the amount includes HST
• the supplier’s HST registration number

If the expense amount is over $500 then further prescribed information is required, including:

• your name (or your business name)
• a description of each good or service sufficient to identify it

Digital Economy Workers and HST:

Some people earn money selling physical or digital items through an internet platform, where the platform brings together the supplier and customer. Examples are Etsy, eBay, and Kijiji. If the individual seller is registered under the Excise Tax Act they may be required to include HST in their price, collect it, and remit it to the CRA. If the seller is a small supplier and not registered, the platform itself may be required to charge HST and remit to the CRA.^[9]

References:

• RC4022 General Information for GST/HST Registrants
• RC4058 Quick Method of Accounting for GST/HST
• Guide T4002, Self Employed Business, Professional, Commission, Farming and Fishing Income
• Excise Tax Act
• Excise Tax Act Regulation 91-45 - Input Tax Credits prescribed information
• Working copy of HST return
• CRA website - online registration for business number and GST/HST program account
• CRA webpage - Input tax credits.