GST information for Canadian Contractor

GST INFORMATION

Registration
Employees are not required to register for GST self-employed and incorporated independent contractors with annual revenue less than $30,000 may opt to register voluntarily. Self-employed and incorporated independent contractors with annual revenue greater than $30,000 must register for GST. To register, the contractor should contact the local GST office to obtain the appropriate registration form. The toll-free telephone number is 1-800-959-5525.

Filing Requirement
Annual returns may be made if annual revenue is less than $500,000. The GST return must be filed within three months following the reporting year. For sole proprietorships, the year-end is December 31. For incorporated contractors the year can be calendar year or fiscal year. Instalments for GST, however, must be made on a quarterly basis if the previous year's net tax was $1500 or more. A person may also elect to file a GST return monthly or quarterly.

Calculation and Remittance of GST
A contractor who has registered for GST must collect GST at 5% of his/her revenue for services provided. The contractor should keep a record of the GST collected and report on the GST return. At the same time, he/she should also keep a record of the GST paid on business expenses such as travel, legal and accounting fees. The GST paid is to be reported as GST credit on the GST return. The difference between the GST collected and GST paid (credit) will have to be remitted to Canada Revenue Agency (CRA) together with the GST return. Late filing and payments will be subject to interest and penalty.

Contractors with annual revenue not greater than $200,000 may elect to use the "Quick Method". Under this method, the contractor will collect GST at 5%. However, he/she only needs to remit to CRA at 3.3% on the first $30,000 of GST - included revenue and 4.3% on the remaining balance. For example, if his/her revenue is $40,000, the GST collected and remitted are as follows:

Revenue: $40,000
GST collected at 5%: $ 2,000
GST - included revenue: $42,000
Remittance to CRA:

at 3.3% on the first $30,000: $990
at 4.3% on the balance of $12,400: $533
Total Remittance: $1,523

In this example, the contractor collected $2,000 of GST but he/she only has to remit $1,523 to CRA. The contractor has, therefore, gained $877. On the other hand, by electing to use this "Quick Method", the contractor foregoes the option of claiming actual input tax credits for GST paid on expenses. In this example, if the contractor's expenses exceed $14,617 then there will be no monetary advantage. In order to use this method, an election form must be filed with Canada Revenue Agency by the applicable due date. For more information, visit the Canada Revenue Agency site.

DISCLAIMERThe above is an overview of GST. It may not be complete, accurate or relevant to each person. We strongly recommend the contractor seeks professional advice from tax experts.