Saturday, August 03, 2013

The Business Chat - Myth busting and HST


First up in the money conversation if that darn tax subject. HST - harmonized sales tax. Again. It’s not going away, it’s required, here’s how it works.

You are legally obligated to collect HST if your sales are greater than $30,000. This is gross sales, not net. If your company is incorporated then the HST number is tied to the corporation. If you are a sole proprietor, a partnership or selling without registering your business then the HST number is tied to YOU personally. As soon as your self-employed income reaches $30,000 then you are required to collect HST.

Let’s look at 2 examples. Mark is a part-time teacher and stained glass artist. Debby is a free-lance (self-employed) yoga teacher and a jewelry designer.

Last year Mark made $20,000 as a teacher and $11,000 from his stained glass work for total sales of $31,000. Now, as a teacher he works for someone else, the income is already taxed, he receives a T4 and this doesn’t count towards his self-employment sales. For HST purposes his sales are $11,000 and he doesn’t have to collect HST.

Debby made $20,000 as a yoga teacher and $11,000 from her jewelry work for total sales of $31,000. As she is self-employed for both streams of slaes for HST purposes her sales are $31,000 and she is legally required to collect HST on both her yoga classes and her jewelry work. It wouldn’t matter if Debby had registered either of her occupations as an actual business.

If you are collecting, then the HST is collected on both retail and wholesale sales. Retail is directly to the public, wholesale is to stores.

Sometimes it makes sense to register and collect HST even if your sales are not at $30,000. The advantage to registering for HST and collecting is that you receive back any HST you have spent for your business. If you spent $10,000 last year on supplies, phone, internet, booth fees, etc then you have spent $1,130 on HST. If you are collecting HST on your sales then you can claim back this $1,130. These are called ITCs – Input Tax Credits.

I hear a lot of chatter from people about “oh, I don’t have time to do all that work tracking HST”. “I can’t be bothered, it’s too much effort”. Really? Who among us isn’t spending $10,000 a year? How much more do you have to sell to make $1,130? Why not just do a bit of paperwork and get your money back?

Keeping track of your HST collected and paid is a simple thing. It doesn’t require accounting software or hours of your life. It is not difficult. What is does require is a bit of regular work. I am a full-time artist, doing 3 or more craft shows every month. I spend approximately one hour a month doing my bookkeeping which includes tracking my HST. I run my bookkeeping on an excel spreadsheet. One hour a month people, that’s all it takes. Next time I’ll run through exactly what I do every month to keep my little ship afloat.

PS. The government has several websites with all the appropriate information on them. They are clear as mud. I have had very good luck with the people manning the phones at 1-800-959-5525. Just keep pressing buttons until you find a human. They know what they’re talking about and they don’t bite.

PPS. The HST exists in BC, Ontario, New Brunswick, Nova Scotia and Newfoundland as of August 2012. For the other provinces these rules are the same for the GST/PST. For example, if you are in Manitoba and your sales are $31,000 then you must collect 5% GST and 7% PST. If you are in Alberta and your sales are $31,000 then you must collect 5% GST. For the taxes applicable to your province see the following chart. 

Prov
HST
GST
PST
BC
12%
5%
AB
5%
MAN
5%
7%
SASK
5%
5%
ON
13%
5%
QC
5%
7.5%
NB
13%
5%
NS
15%
5%
NF
13%
5%
PEI
5%
10%
NWT
5%
And now let me bust a few myths.

Myth #1. I’m an artist and artist made goods are tax exempt. 
Reality: Wrong. 

Myth #2. I’m not registered as a business so I don’t have to collect tax. 
Reality: Wrong. You do not have to register as a business in order to make sales. If you make sales (of goods OR services), and your sales are higher than $30,000 you MUST collect tax. 

Myth #3. I don’t have to collect tax on my time. 
Reality: Wrong. If you sell your time (services) you must collect tax. Examples of selling your time are graphic design, data entry, freelance writing. 

Myth #4. I’m a small supplier, I don’t have to collect tax.
Reality: Wrong. Unless your company is incorporated you must collect tax. 

If you have any questions go ahead and call Revenue Canada. It’s much better to spend some time on the phone asking questions than receiving that dreaded letter telling you that you screwed up. Staying on the right side of the tax department is always a smart business move. 

1 comment:

Anonymous said...

You missed NU, Nunavut, in your list.