One thing that all businesses have to deal with, and really all people have to deal with is Taxes. Taxes are all around us as business people and it can often feel like everything we do is steeped in taxes. One of the objectives as a small business owner is discovering how we can legally avoid paying as much tax as we possibly can.
The type of tax I was going to talk about this time is GST. Worldwide this type of tax is commonly known as VAT or Value Added Tax. Basically it is a type of tax that companies are able to recover. A VAT type tax is often known as a “good” tax if any type of tax is known to be good. It is better for sure than some provincial taxes that are unrecoverable by business.
In Canada a business has the option of not charging or recovering GST if they earn less than $30,000 a year. Most accountants or bookkeepers would advise any business to register for GST. I see both sides of the equation because obviously not charging GST is a favorable situation for most small businesses since it can make your products seem more attractive.
On the other hand not being able to claim tax credits for business purchases does hit your bottom line. I would suggest small business owners who do not have to collect GST to take a look and decide on your own if your input costs related to GST are less than the “loss” you would take by charging GST.
Businesses who supply goods to other companies, take a look though at registering for GST. Any company of any size will have GST registration so the GST cost to them is temporary since the Government will credit back all those costs.
Monitoring the costs of taxes paid out on purchases verses the impact that charging your customers taxes is always important to businesses. Fortunately due to Canada’s implementation of a VAT tax instead of a non-refundable tax like many other countries and states/provinces.
My next tax article will cover the new changes going on in Canada’s largest province with a change from GST + non-recoverable provincial taxes to the new HST (Harmonized Sales Tax).