HST and GST for Canadian Contractors: A Complete Guide

Understanding HST (Harmonized Sales Tax) and GST (Goods and Services Tax) is crucial for Canadian contractors. This guide covers everything from registration requirements to filing returns.

HST vs GST: What's the Difference?

GST (Goods and Services Tax): A 5% federal tax applied across Canada.

HST (Harmonized Sales Tax): A combined federal and provincial tax in participating provinces:

Ontario: 13%

New Brunswick: 15%

Newfoundland and Labrador: 15%

Nova Scotia: 15%

Prince Edward Island: 15%

PST/QST: Some provinces have separate provincial sales taxes (BC, Manitoba, Saskatchewan, Quebec).

Do You Need to Register?

Mandatory Registration

You must register for GST/HST if your worldwide taxable supplies exceed $30,000 in any single calendar quarter or in the last four consecutive calendar quarters.

Voluntary Registration

Even if you're under $30,000, you can voluntarily register. Benefits include:

Ability to claim Input Tax Credits on business expenses

Appearing more professional to clients

No retroactive registration required if you exceed threshold

When to Register

Immediately when you exceed $30,000

Optionally, when you start your business

Input Tax Credits (ITCs)

When registered, you can claim ITCs on the GST/HST you paid on business purchases. This is often the primary benefit for small contractors.

Eligible for ITCs:

Office supplies and equipment

Professional services (accounting, legal)

Software and subscriptions

Business travel and meals (50% for meals)

Vehicle expenses (business portion)

Home office expenses (business portion)

Not Eligible:

Personal expenses

Club memberships

Entertainment expenses beyond 50%

Life insurance premiums

How to Calculate ITCs

For most purchases, the ITC is simply the HST/GST amount you paid.

Example: You buy a $1,000 laptop in Ontario (13% HST).

HST paid: $130

ITC claimable: $130

For mixed-use items (like a car), calculate the business-use percentage.

Filing Requirements

Reporting Periods

Annual: Revenue under $1.5M (or by choice)

Quarterly: Revenue $1.5M to $6M

Monthly: Revenue over $6M (or by choice)

Most freelancers and small contractors file annually.

Filing Deadlines

Annual filers: Three months after your fiscal year-end

Quarterly/Monthly: One month after the reporting period

What You Report

Total GST/HST collected from clients

Total ITCs (GST/HST paid on business expenses)

Net tax = Collected - ITCs

If ITCs exceed collections: You get a refund!

Quick Method of Accounting

Small businesses (under $400K in taxable supplies) can use the Quick Method:

Simplified calculation based on a flat rate

No need to track ITCs for most purchases

Often results in tax savings for service businesses

The rates vary by province and business type (e.g., 8.8% for services in Ontario).

Common Mistakes to Avoid

Not registering when required - Penalties apply

Forgetting to charge HST/GST - You're liable even if not collected

Missing ITCs - Keep all receipts

Late filings - Interest and penalties add up

Not separating accounts - Makes tracking difficult

Provincial Specifics

Ontario (13% HST)

Most common for contractors

Full ITC claims available

Report on federal return

British Columbia (5% GST + 7% PST)

PST on certain items (not ITCs)

Some services exempt from PST

Separate provincial registration may be required

Quebec (5% GST + 9.975% QST)

Separate QST registration required

Separate QST return filing

QST Input Tax Refunds available

Alberta (5% GST only)

No provincial sales tax

Simplest for contractors

Lowest tax rate in Canada

Using Technology for HST/GST Tracking

Tools like ExpenseFlow automatically:

Calculate HST/GST on your expenses based on your province

Track ITCs throughout the year

Generate reports showing total ITCs claimable

Separate HST amounts on your exports

Record Keeping Requirements

You must keep records for 6 years, including:

Invoices issued showing GST/HST collected

Purchase receipts showing GST/HST paid

Bank statements and payment records

ITC calculations

Conclusion

HST/GST compliance isn't optional, but it doesn't have to be complicated. Register when required, track your ITCs diligently, and file on time. The ITCs alone often make registration worthwhile for contractors with significant business expenses.

*Disclaimer: This article is for informational purposes only. Consult a tax professional for advice specific to your situation.*