Over the past year I have added several clients, some whom have hired me for my knowledge of GST/HST rules and regulations. It can get very confusing to the average small business owner. In fact many big corporations don’t know all the rules either. That is where a company like CBTS that works on several companies have a better over all view and knowledge. For example many don’t know what Zero Rated GST/HST is. To put it in simple terms, those goods and services that are normally charged GST/HST are charged the GST/HST but at 0%. Yes that is right zero percent! Why is it zero percent and not just exempt. The best way is to give an example. Tom’s company sells and ships widgets world wide. All of his products are considered taxable. Tom’s company charges the GST/HST based on the rate of the province or territory that each customer is in. But at least 25% of his clients are outside of Canada. So they are not charged the GST/HST but the widgets are still considered taxable but at a zero percent rate. There are many other examples and explanations. This is one of the more common ones. But some goods and services Canadian’s purchase are also Zero Rated. For a further explanation take a look on the CRA website http://www.cra-arc.gc.ca/tx/bsnss/tpcs/gst-tps/gnrl/txbl/txblxmpt-eng.html
So if the above example of Tom’s business is used and only 75% of his clients are charged GST/HST does this mean he can only claim back 75% of the GST/HST he pays out on expenses? No he can claim 100% of the GST/HST on expenses as all of his goods are taxable. Even if the rate is Zero Percent it is still a taxable rate. The only items he cannot claim 100% of the GST/HST are on the Meals & Entertainment expenses. As only 50% is an allowable expense to the business, this means that only 50% of the GST/HST on Meals & Entertainment expenses can be used. The same would go for vehicle use expenses, and home use expenses. If part of the personal vehicle is used for business then only part of those expenses can have the GST/HST claimed. The same for household expenses. If only part of the house is used then only on that portion of the house hold expenses can you claim the GST/HST paid out.
One other thing to consider about GST/HST. If your business has different items and or services where not all of them have GST/HST charged on them, then only that portion of sales that have GST/HST charged can be claimed on your expenses. For example a Medical Rehab Clinic in Ontario offers several different services for their clients. Physiotherapists, Chiropractors, Massage Therapists, and they sell some sports supplements and aids for sprains. Only the supplements, aids for sprains, and Massage Therapy have GST/HST charged on them. On average 25% of their sales are taxable. So there fore they can only claim 25% of the GST/HST they pay out on expenses. BUT on the expenses related to the goods and services that have GST/HST on them they can claim 100% of the GST/HST. In this example purchase of supplements and aids for resale. Along with the massage lotions can have 100% of the GST/HST claimed back.
GST Return audits do happen and for good reason. The auditors usually find money that has been claimed the shouldn’t have been claimed. Since they have proven valuable to the government in getting back more money, they are here to stay. So make sure you can back up all your claims. Never accept an invoice from a supplier that charges you GST/HST without their GST/HST number visible. Some companies have thought their accountant when registering their business also registered them for GST/HST but never did. Here is a neat little from the CRA tool for finding out if the supplied number is legit https://www.businessregistration-inscriptionentreprise.gc.ca/ebci/brom/registry/registryPrompt.do
As always the CRA has extensive articles on the GST/HST and is a good place to start.