Well today I am getting a GST audit so I thought I would ask the GST auditor some questions and blog about it.
I find the GST tax system quite fair (maybe that is because I am requesting a refund). But basically the way it works is that my company charges GST to its clients (that are not GST exempt). I also pay GST on the items I buy. I then have to remit to the goverment the charged amount minus the amount I payed in expenses. So if I chaged $500 to my clients and got charged $700 for purchasing things to run my company then the goverment would owe me $300.
When do you need to get a GST number?
Short answer is once you make over $30,000. But if you are a company that is not a small supplier anymore (for instance a hair dresser). You should charge right away (but this is a gray area I am told).
Why should you get a GST number before you make $30,000?
If you are a startup company you can claim all of your startup costs and get a credit back. What I did was start as a trade name (basically me opperating as a company and then incorporated later). It was a lot harder to get a GST credit on my already owned assets as I had paid for them personally.
Another good point the auditor made was that I can not get a credit on non-assets for before I was incorporated. This means that I can get a credit on the computers / software I purchased but not on costs like meals, utilities, travel, and other non-physical goods. So it is a really good idea to get a GST number when you have high startup costs.
How can my credits be thrown out?
If they are not properly documented. If you are taking a client out for lunch make sure to write on the back of the receipt who you were with and the reason for the meeting. Not having this documents could easliy lead to having all your meal / travel expenses thrown out.
If they are excessive. Taking a client out to lunch every week might be considered excessive and most if not all of these items could be thrown out. Also if it is demed that your expense might be personal it can be thrown out. For example vehicle expenses when your vehicle is used 90% personally would result in 90% of your credit being thrown out.
How about networking expenses?
If you are taking out prospective clients or even other people in the industry you can claim a GST credit. If you are doing it 52 times in a year and do not get a client out of it…. guess what? Tossed!
Do I charge/credit GST to foreign clients?
No. If you deal with someone in another country you do not charge them GST. If you purchase something from a foreign client you will not usually pay GST unless the item is handled by a customs broker which then (because they are a Canadian company) will charge you GST.
Should I get a GST number as a part time contractor?
If there is even the remote possiblity of making over $30,000 in a year I would. I had a friend whos company suddenly made over the limit and then she had to pay $2,500 for the GST she should have been charging plus the fines for not paying it instantly. It’s great to also be able to get a credit for your expenses so that either you owe less to the goverment or get a bit of a refund.
GST Exempt Customers
There are a few customers that are GST exempt. The main ones are the goverment, indian reserves, and foreign clients. Be carefull around this as if over 90% of your clients are GST exempt you can not claim a GST credit! Another good reason to have diversified income streams into your company.