Disclaimer: I am not an accountant, a tax lawyer, or an employee of the Canada Revenue Agency, I am a web designer, and I wrote this article because I wanted to help other Canadian web designers who might also be searching for the answer to the same question I had when I first started my web design business: “Should I be charging tax for my web design services?”.

In Part 1 of this article we explored Provincial Sales Tax (PST), or Reatil Sales Tax (RST) as it is known in Ontario, and whether as a Web Designer you should be charging this tax to your clients for your web design services. Since not all Provinces require you to charge this tax we also explored the various reasons why, examining each Province individually.

In Part 2 of this article we are now going to look at the Federal side of things. We will look at both the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST), and seek to understand the difference between the two.

Part 2 - Federal Tax Laws - The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST)

What is the Goods and Services Tax (GST)?

The GST is a 5% tax on most Canadian goods and services. (The GST was reduced to 5% as of January 1, 2008).

What is the Harmonized Sales Tax (HST)?

The HST is a combination of the PST and GST. This eliminates the need to charge PST and GST separately, only the HST is charged on goods and services at a tax rate of 13%. The only Provinces to use the HST are Newfoundland and Labrador, New Brunswick, and Nova Scotia. The HST was also reduced as of January 1, 2008; taking it from 14% to 13%.

When should I be charging my clients GST or HST for my web design services?

When determining whether you should be charging your clients GST or HST you must first determine whether or not your business fits the Canada Revenue Ageny’s (CRA) definition of a “Small Supplier”. The CRA defines a Small Supplier as a business “whose total taxable revenue before expenses are $30,000 or less annually.”[1]

If your business fits into this definition then you are considered a “Small Supplier” and therefore you are not legally obligated to register to collect GST/HST.

If the total annual taxable revenue of your business is greater than $30,000 (before expenses) then you are NOT a Small Supplier and therefore you ARE legally obligated to register to collect GST/HST.

As a Small Supplier even though you do not have a legal obligation to register to collect GST/HST you can still choose to register voluntarily. The incentive here is that because you will be charging GST/HST on your web design services you will be able to “claim Input Tax Credits (ITC) for the GST/HST you paid or owe on purchases related to your business.[2]

So, if your business is considered a Small Supplier you do not have to register to collect GST/HST, but if you find yourself with a lot of business expenses and the GST/HST on those purchases is quite high, you can volutarily register to collect GST/HST for your services so that you can “reclaim” the GST/HST you’ve paid on your business expenses.[3] Just remember, if you’ve gone this route you will have to start charging your clients GST/HST for your web design services.

As a Small Supplier, if I volunteer to register for the GST/HST am I registered forever?

As long as you stay within the Small Supplier definition you can cancel your registration. However, you have to stay registered for at least a year before you can ask to cancel.[4]

What is with the whole “GST/HST” thing? I thought they were two separate taxes?

In true Canadian form our government loves to keep things as confusing and complicated as possible. So, YES the GST and HST are two separate taxes, but if you register to collect the GST then you also have to collect the HST when applicable. Confused? Don’t worry, I’ll do my best to help out.

The reason it is so confusing is because some provinces have chosen to combine their Provincial Sales Tax with the Federal Goods and Services Tax into what is known as the Harmonized Sales Tax. So when a business registers to collect GST that business has also automatically registered to collect HST as well.

Does this mean I have to collect both GST and HST?

No. What it all comes down to is where your base of operations is for your business, and where your client lives. If you conduct your Web Design business in a Province that does not have the HST but you are doing business for a client that does live in a Province that has the HST, then legally you are obligated to collect the 13% HST on the selling price of your web design services for that client. On the flip side of that, if you conduct your Web Design business in a Province that does have the HST but are doing work for a client that lives in a Province that doesn’t have the HST then you would only have to collect the 5% GST, not the 13% HST. And finally, if you conduct business in a non-HST Province and your client lives in a non-HST Province then GST would only be charged for your web design services to that client. Fun stuff eh?

What about a client that doesn’t live in Canada? Would I be charging them GST or HST for my web design services?

When you are dealing with clients outside of Canada then you are in fact “exporting” your services, and because of this no GST or HST is charged for these services. The CRA classifies exported goods and services as “zero-rated” items, these items are still taxable but their tax rate is zero.[5]

Federal Tax - The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) - Recap

And there you have it. The GST/HST may seem complicated but not as much as the PST. You’ll remember from Part 1 of this article that there was a lot of factors to be looked at when determining whether to charge PST for your web design services or not. For the GST/HST it all comes down to how much taxable revenue your Web Design business makes in a year (before expenses). If your business makes over $30,000 you would have to collect GST or HST, if your business makes $30,000 or less a year then you do not have to collect GST or HST, but you can volunteer to do so if you want. And if you are to collect GST or HST it is only on your Canadian clients.

Lastly, when you do charge GST or HST it is on the selling price of your Web Design services, before PST is charged (if you end up having to charge PST as well). This allows the client to avoid paying GST on the PST as well.[6] For example, you are charing your client $1200 for a website design, you are a GST registrant so you have to charge your client GST for your services. The client lives in a non-HST Province so you are only charging them the 5% GST. You don’t have to collect PST for the web design services you are offering this particular client so only the 5% GST is applied to the $1200 selling price of your services. The GST ends up being $60 which brings the total price for your services to $1260. For your invoice you must clearly indicate the cost of the GST/HST and PST (if applicable) separately from the original selling price. The total price of your services will then reflect the combination of each.

I hope this part of the article has helped to shed some light on the Goods and Services Tax, and the Harmonized Sales Tax, as they apply to your Web Design Business. Please remember this is only my personal insight on these matters, if you require authoritative or legal advice please contact a representative at the Canadian Revenue Agency http://www.cra-arc.gc.ca/menu-e.html.

Thank you very much for taking the time to read this article and please feel free to contact me with any questions, comments or concerns.

References:

(click the reference # to return to its location in the article)

[1]

About.com Small Business: Canada - GST and HST - Goods and Services Tax
http://sbinfocanada.about.com/od/gsthst/GST_and_HST_Goods_and_Services_Tax.htm

[2]

Canada Revenue Agency: General Information for GST Registrants
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-07e.pdf

[3]

About.com Small Business: Canada - GST and HST - Goods and Services Tax
http://sbinfocanada.about.com/od/gsthst/GST_and_HST_Goods_and_Services_Tax.htm

[4]

Canada Revenue Agency: General Information for GST Registrants
http://www.cra-arc.gc.ca/E/pub/gp/rc4022/rc4022-07e.pdf

[5]

Taxtips.ca - GST/HST
http://www.taxtips.ca/gst.htm

[6]

Taxtips.ca - GST/HST
http://www.taxtips.ca/gst.htm