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 while 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 growth 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 purchasers. We then pocket the distinction. The quantity we save annually 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 reap the benefits of this. That’s as a result of we use the “fast methodology” for our calculations.
The federal government provides you two selections for paying GST and PST/HST instalments: the “detailed methodology” and the “fast methodology.” With the fast methodology, you merely pay 3.6% of the 5% GST you acquire. 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 acquire.
The benefit of the fast methodology is that it’s a lot much less work. You will need to solely add up how a lot gross sales tax you cost your purchasers or prospects. My partner and I exploit the fast methodology and discover it simple to do our calculations with an Excel spreadsheet. There isn’t a must hold 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 fast methodology. Governments supply a credit score of an extra 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 acquire for that quantity and pocket the opposite 5.2%. Nonetheless, if you happen to use the fast methodology, it’s essential to add the credit score to your whole income while you file your revenue tax return.
The detailed methodology entails extra work, since it’s essential to add up the GST and PST/HST you paid on every of your bills and subtract it from the taxes you acquire to find out the quantity you must 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 while you file your revenue tax return.