HST or Harmonized sales tax is one of the many factors which makes Canada unique to other countries. The amount of HST you pay for your business or the amount of HST you charge to your clients varies significantly depending on which province you live in. If you are looking to determine how much HST you need to pay depending on your province we have a fantastic infographic to make your life a whole lot easier.
Let’s take an example. Say, for instance, your province requires you to pay 13% HST. If you made sales of $10,000 then you will collect $1300 of HST and this amount has to be paid back to the CRA.
How can you Reduce your HST Payable?
The HST Regular Method
Naturally, you want to save as much money as possible on your business expenses and HST is no exception. This is where Input Tax Credits step in. If you pay HST on any other expenses regarding your business you can claim that amount as an ITC and use it to reduce the total HST payable you currently owe.
So if you paid $100 of HST on other business expenses such as when you purchased inventory, then you can go ahead and claim this $100 as an ITC to reduce your total HST.
Going back to the previous example, if you had total sales of $10,000 you would owe 13% of that as HST. The $1300 you owe can be reduced by claiming your $100 of HST paid as an ITC. Therefore, the total amount you owe would come to $1200.
The HST Quick Method
There is an even more effective way of saving on HST and this method is called the HST quick method. The HST quick method allows your accountant to file an election with the CRA and this can help you reduce your HST significantly.
If you and your accountant opt to go with this method you won’t be claiming any ITC’s. What will happen is that you are only going to pay back a percentage of your HST collected. This percentage is called the remittance rate. Once again, the remittance rate you have to pay depends highly on your situation (such as which province you live in, and what sort of business you run). But generally, the amount comes to 8.8 %.
So you only have to pay 8.8% and the remaining 4.2% stays in your bank account. Apart from only having to pay back $880, your accountant can also claim another $300 adjustment every year to help you save even more.
Note: You can not claim ITC’s when you use the quick method.
Which Method is Best for Me?
The HST Quick method saves a lot of HST but it is definitely best for businesses which don’t earn more than $400,000 a year. Also, certain professionals such as accountants, lawyers, and charities are completely prohibited from using the quick method.
Ideally, professionals who have fewer taxable expenses should opt for the quick method since ITC’s will no longer be available.
You should get in touch with an accountant to help you save on your taxes and HST.