Do I need to charge HST?
June 28th, 2010
If you are asking yourself, what the heck is HST, then this post probably doesn’t concern you. HST stands for Harmonized Sales Tax. Currently in British Columbia and Ontario we have the GST (Goods & Services Tax) and the PST (Provincial Sales Tax). As of July 1st, our “lovely” governments are combining these taxes into one called the HST. If you’re like me, you’re probably confused if you need to charge the HST on your web design work. The answer is “maybe” – read on to find the answers you need.
The rules for each province are slightly different, so from this point forward, I’m only going to refer to the BC tax (that’s where I live).
Taxes up until now
Up until July 1, 2010, web designers have been required to charge 5% GST on their web work, but not 7% PST. Why no PST? Because we are not providing a tangible product to our clients. An example of a tangible product would be business cards – not the design for the business cards, the actual printed cards. Therefore, on all your jobs, you should be charging 5% GST and remitting it to Revenue Canada when you do your taxes each year. To learn more about registering for a GST/HST number, please visit .
The $30,000 rule
There is a loop hole to avoid charging GST, which will carry over to the HST. If you’re company makes less than $30,000 a year, you are classified as a small supplier, and you do not have to collect GST/HST. However, the catch is, you’re not allowed to write off any GST/HST you have paid on any business expenses (ie: a laptop). Therefore, this has it’s advantages and disadvantages.
The unfortunate reality of HST
I prefer to think of the HST as the GST turning into the HST. All the same rules apply. Basically, you now have to charge your clients 12% tax instead of 5%. This definitely sucks and has the potential to make your estimates less competitive with designers who live out of province or country.
A small convenience of the change over is, apparently if you have a GST number, you don’t need to apply for an HST number. It will simply transfer over. However, you might want to look a little deeper into that subject as I’m only going off what I have heard from other designers. Our fabulous provincial government has done an amazing job of not informing us of any of the details. Everything I’ve learned has been mostly through research on the internet. There’s a discussion over at worth checking out for more info.
Summary
In the end, this pretty much sucks for all parties involved (designer & client), as we have to start charging an additional 7% tax. However, even if you are making under $30,000 a year, I’d suggest registering, as the tax write-off benefits are generally worth it. If you have any questions on this subject, please feel free to post them in the comments, and I’ll do my best to answer them.
Disclaimer: I am a web designer not an accountant. All of the above info is a result of research I have done on the internet. Each business is potentially a special case. Therefore, you should talk to an accountant about your specific situation.
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26 Comments on “Do I need to charge HST?”
No problemo, glad to be of help.
July 7, 2010 » 11:01 pm
Jeff
Hey, thanks for putting this information in PLAIN ENGLISH. You’re dead on when you say the BC government has done a poor job informing people about this new tax, both consumers and small businesses.
Thanks again!
Jeff
July 8, 2010 » 11:29 pm
No prob, aren’t government websites a nightmare for reading?
July 9, 2010 » 3:11 pm
Great post, but there’s a tiny error. I believe HST will actually be 13%, not 12% as indicated. Just thought you might want to correct that for everybody. Cheers!
July 13, 2010 » 5:54 pm
Fred
I have a small business repairing electronic devices for a music retail store. Since I invoice the store directly on a monthly bases and not the customers and since the repair income is less than 10K a year, will I need to register for HST?
July 13, 2010 » 7:41 pm
Hi, it actually is 12% for BC – I think it might be 13% in Ontario. thanks
July 13, 2010 » 10:13 pm
Sorry! My bad – I was thinking you were talking about Ontario. Yes, definitely 13% for Ontario though. Cheers!
July 14, 2010 » 12:57 am
no worries
July 14, 2010 » 9:04 am
Hi Fred, sorry my knowledge only applies to web design and freelance for tax purposes.
July 18, 2010 » 9:34 pm
thalia
how about charging hst for non-bc clients?
July 18, 2010 » 10:38 pm
Hi Thalia,
It starts to get complicated but if your client is out of province, you only need to charge GST.
July 18, 2010 » 10:58 pm
If a sole proprietors company takes in $150K to $250K in sales, but pays most of that out to employees+other overhead fees, and the actual profit for the sole proprietor is less than $30k, does this mean he or she does not have to collect HST?
If the profit for the sole proprietor, is above $30k, does this not mean he or she only has to charge on the amount of profit over $30k?
As an example, if I, even though sales were $250,000, only actually make $60k in personal profit, do I only have to remit HST for sales that generated profit beyond $30k?
so to add more details to the question: the first segment in sales ($1 to $150k) turned up a profit for the sole proprietor of less than $30k, but sales from segment 2 ($150,001.00 to $250k) generated income for the sole proprietor greater than $30k… does that mean he or she would only collect tax on sales made in the second segment?
July 26, 2010 » 9:39 pm
Hey Anthony,
If you collect any HST, then you have to file for the gross total. The only way around it is if you make less than $30K gross and don’t charge your customers HST. Then you don’t have to remit. Sounds like your problem is pretty specific, I’d recommend talking to an accountant.
July 26, 2010 » 10:10 pm
H
I am a sole proprietor making less than $30K. I do not have a business number, I’m just doing this as a side on top of my regular job and I report any income I make as other income when I report my taxes.
My question is the $30K limited to what I make for my business or does that include my salary and business?
August 18, 2010 » 3:19 pm
I believe the 30K is limited to only your business earnings.
August 18, 2010 » 4:50 pm
Tim
Hey guys,my business is actually selling glassware. but i am not the Seller part, am the Supplier. am just wondering when i selling or sign a contract with other company, do i have to charge 12% HST from my Customer? what about if they are from outside of B.C?
August 22, 2010 » 12:57 am
Hi Tim, I’m not sure if your case, I’d ask an accountant.
August 22, 2010 » 12:46 pm
After talking to the CRA, and reading the documentation online, I found that you are correct, and that there is a requirement to charge on the gross sales regardless of the amount of profit it generated you.
The Canadian government is scalping us.
I took over management of a small company (no names cause I do not know how my comments will be received) last summer that was making less than 30k in sales, with the owner doing most of the work. Due to my know-how it now makes around 200k in sales per year and, until the HST hit, it was expanding rapidly. Now I have to take time out and refocus on marketing in order to regain some of our lost momentum. The requirement to raise our rates has lost some clientèle, and although we are adding new clients all the time, instead of focusing on developing a CRM system, I now have to focus on developing a website to attract clients at a faster pace. (something I have been putting off cause there was almost no need ’cause our rates were so competitive).
I hate the HST, and the added costs/time it will require from me and those I work with, in order to be able grow, when, before the HST hit, we had just gotten comfortable.
August 22, 2010 » 1:45 pm
I’m no lover of the HST myself Anthony. It only benefits big business and hurts the little guy.
August 22, 2010 » 9:07 pm
marnes
Hi, I’m newly self-employed working from home in BC, and 100% of my income derives from providing programming services to a client in Germany.
My understanding is that I do not need to charge any taxes for services, and my resulting income will be purely subjected to income taxes while I still can benefit from self-employment deductions. Does that sound right to you?
August 27, 2010 » 1:07 pm
Hi Marnes,
Since the client is out of country, then yes you would not charge them any taxes. The deductions part sounds right, you’ll be able to claim other small business deductions, just not any GST ones if you don’t collect any GST.
August 27, 2010 » 4:40 pm
marnes
Thanks for the info and I do have some more useful information. I was able to navigate the terrible online system and phone numbers and get through to a couple places. Took a few tries, but eventually got through to something called GST Rulings. They confirmed that services performed in Canada for out of country clients are “zero rated” meaning I don’t have to charge taxes. Note, I did read something about having to charge PST to US clients, but that doesn’t apply to my situation.
But he also urged me to apply for a GST/HST number anyway, so I can take advantage of HST rebates on expenses, meaning I benefit from the best of both worlds by not charging HST and also being able to claim HST back on any business expenses. So I did so and the HST app guy was pretty helpful about the whole thing confirming everything I just said.
August 27, 2010 » 4:50 pm
actually you know that is true, there is nothing stopping you from applying for a number so you can take advantage of the benefits. small loophole there you’ve found it would seem
August 27, 2010 » 4:53 pm
Jody
I am starting a massage therapy business in BC and I am wondering if I need to charge HST
August 31, 2010 » 9:21 am
Hi Jody, sorry I’m not sure what the rules are for massage therapy in BC. I’d suggest contacting an accountant or check out:
August 31, 2010 » 10:31 am
THANKYOU – I was looking for general information on charging HST and found this article – I am actually a webdesigner in bc so it was even more pertinent than I was hoping for .
much appreciated,
melissa
July 7, 2010 » 8:41 pm