GST Accounting and Input Tax Credits

GST Accounting and Input Tax Credits

If you’re a small business earning more than $30,000 annually, registering for GST is mandatory unless the products and services you provide are GST-exempt.

What are input tax credits?

Input tax credits are credits that are applied to your GST account under the expense category. They allow your company to recover the GST that your company pays or owes on purchases and expenses directly related to the company. If a company is owed more in income tax credits than is owed on GST, the company receives a refund. One caveat with claiming tax credits is that input tax credits may only be applied to items that are directly related to goods and services that are directly used for the business.

In certain circumstances, there are goods and services that are GST-exempt. These goods and services that are exempt from GST are taxed at a rate of 0% and are “zero-rated”. A business does not have to collect GST on zero-rated goods and supplies. Businesses registered for GST can still claim input tax credits for GST paid on business expenses used to provide zero-rated goods and services.

Certain goods and services may also be GST-exempt. If your business provides goods and services that are exempt from GST, you may not charge your customers GST, nor can you register for GST. In addition, you cannot claim input tax credits for your business.

Understanding accounting principles are imperative in ensuring that fines and penalties are avoided. Compliance with GST principles will also ensure that funding meant for expensing your business is not used for paying overdue GST fees.

There are key dates involved with managing a small business and there are responsibilities with ensuring compliance with the Income Tax Act and Canada Business Corporations Act (CBCA).

If you have specific questions related to your small business, get in touch with a representative from Saidi Law Corporation now.