HST registration: the $30,000 threshold, explained

Every new business in Ontario meets the same question within its first year: do we have to register for HST? The answer turns on a $30,000 figure that is widely known and widely misunderstood. This is how the rule works, and when it makes sense to register before the rule requires it.

The small supplier rule

A business does not have to register for the GST/HST while it is a small supplier. You are a small supplier if your worldwide taxable supplies, together with those of any associated businesses, were $30,000 or less in the last four consecutive calendar quarters, and also $30,000 or less in any single calendar quarter.

Three details in that sentence do most of the work.

Taxable supplies. The threshold counts sales that would be taxable if you were registered, including zero-rated sales such as exports and basic groceries. It does not count exempt supplies. A physician's insured medical services or a landlord's long-term residential rent are exempt, so they do not count toward the $30,000 at all.

Calendar quarters, not your fiscal year. The test looks at the quarters ending March 31, June 30, September 30 and December 31, regardless of your year-end.

Two tests, not one. You cease to be a small supplier if you exceed $30,000 across four consecutive quarters, or if you exceed it in a single quarter. The single-quarter test catches a business that lands one large contract.

When registration becomes mandatory

The timing depends on which test you failed.

If you exceeded $30,000 in a single calendar quarter, you are no longer a small supplier as of the sale that took you over the line. You are considered a registrant from that day, you have to charge tax on that sale and every sale after it, and you have to apply to register within 29 days.

If you exceeded $30,000 over four consecutive quarters but never in a single quarter, you remain a small supplier until the end of the month following the quarter in which you crossed the threshold. You have to charge tax from the first sale after that, and again apply to register within 29 days.

Missing the date is expensive in an unglamorous way. The tax is owed on every sale from the effective date whether or not you collected it from the customer. On $40,000 of sales at 13 percent, that is $5,200 out of the business's own pocket if it cannot go back to the customers.

Some businesses must register from their first dollar. Taxi and ride-sharing operators are the common example.

Why register early

Registration is voluntary below the threshold, and for many businesses it is the better choice.

Input tax credits. Once registered, you recover the GST/HST you pay on business purchases: equipment, software, rent, professional fees. A business investing in itself in its first year often pays more tax on purchases than it would collect on sales. Registering turns that into a refund.

Your customers are registrants. If you sell to other businesses, the HST you charge is recovered by them as an input tax credit. It costs them nothing, and an invoice without an HST number can look like a business that has not yet got its affairs in order.

Growth is coming anyway. If you expect to cross $30,000 within the year, registering at the start avoids the mid-year change in pricing, the retroactive tax on the sale that took you over, and the rush to file within 29 days.

The case against early registration is straightforward: if your customers are consumers who cannot recover the tax, registering makes your prices 13 percent higher or your margin 13 percent thinner. A part-time service business selling to the public may reasonably stay a small supplier as long as it can.

Filing once registered

Registration brings a filing frequency. Businesses with annual taxable sales of $1.5 million or less file annually by default, and can elect quarterly or monthly. Between $1.5 million and $6 million the default is quarterly. Above $6 million it is monthly. Annual filers with net tax over $3,000 also pay quarterly instalments.

Smaller service businesses may be able to use the quick method, which remits a flat percentage of sales instead of tracking input tax credits on every purchase. It is simpler and sometimes cheaper, and it is not right for every business.

Whatever the frequency, the return should be reconciled to the ledger before it goes in. The most common HST problem we see is not the threshold. It is a return that was filed from a bank balance rather than from the books, and does not agree with them.

Thresholds, rates and filing rules change. This article describes the rules as they stood at the time of writing. Confirm the current figures with the Canada Revenue Agency or your accountant before acting.