What Is GST Refund & How to Get It
As a small business owner, paying taxes can be a relatively high expense. However, in certain cases, you’re granted the ability to get a refund on those taxes paid. If you’re running a business in Canada and you’re paying the GST, you might be in luck. For Canadians who pay general sales tax, you may be able to get some of that money back. In this article we’re covering the GST refund, and who to get it. Keep reading to find out more!
Here’s What We’ll Cover:
What is the GST Refund?
The GST refund refers to a number of different GST credits or rebates. They apply to both the goods and services tax (GST), as well as the harmonized sales tax (HST). The GST refund is issued by the Canada Revenue Agency (CRA). This government agency is responsible for collecting taxes from businesses, as well as refunding them.
If you’re a sole proprietor or self-employed individual, business earnings are reported on your T1. These general income tax returns are submitted to the CRA. When they receive this information, they determine if you fall under the credit income threshold. A tax return has to be filed in order to receive the credit.
When reviewing your tax documentation, you may find a time where you qualified for the refund. If you never received it, the CRA accepts refund claims up to three years later. This means that you could still receive your payment retroactively. A great accounting software program could help you find that information out, too! Be sure to review your information when filing tax returns thoroughly.
What is GST?
GST stands for goods and services tax. It is a value-added tax, technically. As such, it’s a consumption tax. That means that it is paid for by consumers, and it is paid when they make a purchase. Depending on what province you’re in, you may be paying GST or HST. HST stands for harmonized sales tax. It is a combination of the provincial and federal taxes. Only 5 provinces currently participate in HST. Understanding what taxes you’re responsible for, and who should be collecting them, is important. You can learn more by visiting the CRA website.
Who is Eligible for the GST Refund?
When filing for a GST refund, there are a few criteria that must be met. First, Canadian residents that are 19 years or older are eligible for the refund. You also must earn less than the income threshold. Because the income threshold is provincial, it is important that you review the CRA website to make sure you fit this guideline.
When Are GST Refunds Issued?
If you’re expecting a refund, you can expect the credits to be issued on one of the following dates:
- July 5
- October 5
- January 5
- April 5
If you’re receiving a refund, you can expect it by bank cheque, or direct deposit. It depends on whether or not the CRA has your bank details on file.
These refunds are sent to certain residents based on the taxes they’ve paid. They are a quarterly payment, and they are determined every quarter. New residents can qualify, but they have to file an additional form to qualify.
The GST Input Tax Credits for Small Businesses
Small business owners qualify for a different form of tax refund from the CRA. This is called the GST input tax credit. Input tax credits are interchangeable with input tax refunds. However, rather than being a full refund, they’re a tax credit, which lowers the amount of taxes your business pays. It’s based on the GST/HST that you pay on business expenses.
If you plan on claiming the GST input tax credit, your business must have a GST/HST account with the CRA. When you have an account with the CRA, you must also charge GST/HST on your goods or services. Your business incurs many expenses. These expenses or purchases are likely for using, consuming, and supplying needs for your business. These business activities may qualify for a tax credit.
What You Need to Claim the Input Tax Credit
To claim the input tax credit, you’ll need documentation. This documentation serves as proof for your business’s input tax credit claim. The documentation you should be keeping are receipts and invoices. Receipts are going to show the Canada Revenue Agency how much you’ve paid in GST/HST. Invoices will show them how much you’ve collected and charged for GST/HST.
When you’re claiming the input tax credit, you have four years to make your claim. Businesses that make less than $6 million in sales annually qualify. Businesses that make more than $6 million in sales annually have two years to make a claim.
Rebates and Refunds
Sometimes, mistakes happen. The CRA understands this. As such, they allow individuals and businesses to claim rebates for any GST or HST paid in error. To qualify for these rebates and refunds, your business does not have to be GST-registered.
An example of an appropriate refund request would be payment on a non-taxable item. Some items are not able to be taxed under GST or HST. If you find that you’ve made payments for non-taxable items, and have paid tax on them, a claim should be filed. If this happens at any time, a refund should be requested.
Does Every Business Collect GST/HST?
Not all businesses are required to collect GST or HST. When a business reaches the income threshold of $30,000, they are required to register. However, registration is voluntary when under the threshold. This means that even if you fall below the threshold, you can register to receive the refunds and tax credits, if you qualify for them.
If you’re a small business, GST refunds or tax credits can be immensely helpful. However, to be able to claim them, your business must be GST-registered. Weigh your options, and consider registering your small business voluntarily. It could open up more opportunities for you! If you want more tax-related guides like this, head over to our resource hub. We’re on top of all things tax-related.