Why registering for GST/HST pays off
The opposite wonderful cause to cost GST and HST is that it pays off in {dollars} and cents.
One of many nice benefits of being self-employed is that once you cost these taxes, you solely give the federal government what you charged minus the GST or HST you pay in your deductible enterprise bills.
For freelance writers like us, that is the gross sales tax we pay on printer paper, web service, skilled improvement workshops and extra. The federal government lets us in essence deduct the gross sales taxes we pay on deductible bills from the gross sales taxes we cost our shoppers. We then pocket the distinction. The quantity we save every year is roughly sufficient to pay for a visit to Europe.
HST fast methodology or detailed methodology?
The excellent news is that we don’t have so as to add up each little bit of GST and gross sales tax we pay on our bills to make the most of this. That’s as a result of we use the “fast methodology” for our calculations.
The federal government offers you two decisions for paying GST and PST/HST instalments: the “detailed methodology” and the “fast methodology.” With the short methodology, you merely pay 3.6% of the 5% GST you accumulate. Within the case of provinces with HST, it’s a share of the HST: so, in Ontario, you solely pay 8.8% to the federal government from the 13% you accumulate.
The benefit of the short methodology is that it’s a lot much less work. You could solely add up how a lot gross sales tax you cost your shoppers or prospects. My partner and I exploit the short methodology and discover it simple to do our calculations with an Excel spreadsheet. There is no such thing as a have to maintain an in depth account of the gross sales tax you pay on all of the pens, paper, printer cartridges and extra you declare as deductible bills.
There’s one other bonus to utilizing the short methodology. Governments provide a credit score of a further 1% on the primary $30,000 of gross income. So, for instance, in Ontario you pay 7.8% (as a substitute of 8.8%) of the 13% HST you accumulate for that quantity and pocket the opposite 5.2%. Nonetheless, for those who use the short methodology, you have to add the credit score to your whole income once you file your revenue tax return.
The detailed methodology includes extra work, since you have to add up the GST and PST/HST you paid on every of your bills and subtract it from the taxes you accumulate to find out the quantity it’s important to pay. However this calculation methodology is beneficial in case your taxable bills are proportionately excessive, amounting to roughly greater than 50% of your revenue. The benefit of the detailed methodology is that you simply don’t have so as to add the quantity you keep to your income once you file your revenue tax return.
