As a small business owner the idea of giving the government money before you’re required to is probably not leaving a great taste in your mouth. It’s probably something similar to oil of oregano. Never had it? Try it and tell me it isn’t awful. You can’t, can you?
But the thing is, it was never your money to begin with. GST doesn’t come off your bottom line nor your top line, or any other line for that matter. When you register for GST you start adding 5% to your goods sold and/or services provided. Then if you’re super organized (and I HIGHLY recommend this) you take that 5% GST and you put it in a separate bank account where it will sit and wait until it’s time to remit to the government. Hell, you could even put it in a savings account and earn a few bucks in interest. Then, at the end of the month, quarter, or year, you take the money from that account and you pass it along to the government.
The benefit to registering for GST is that you then get to claim back the GST you’ve paid out on purchases for your business. When you (or your bookkeeper) does your bookkeeping and enters all of your expenses, the GST gets broken out and there it waits in its own super special account. Then, when the time comes to file your GST, you take this amount, your Input Tax Credit (ITC), and you offset it against the GST total you’ve collected during the period.
The amount of GST you’ve already paid out reduces the amount that you have to pay to the government.
For example, if you earn $30,000 in a year, that’s $1500 (30,000 x 5%) you’ve set aside to remit. And if you spend $5000 on expenses in that same year, that’s $250 (5000 x 5%) you’ll get to deduct from the total you were going to remit. $1,500 – $250 = $1,250.
That’s good, right?
Here’s the catch:
You now have to track, reconcile, file and remit GST. This means more time for your bookkeeper which results in more costs to you. BUT assuming your bookkeeping is up to date and fairly straight forward, it shouldn’t be a massive additional expenditure – certainly not so much that it would outweigh the benefit of being able to claim those ITCs (unless your expenses are crazy minimal, in which case the ITCs would be crazy low and thus the expense of filing would actually outweigh the ITCs).
Doing your own books and stressed about filing GST? Not to worry, many bookkeepers will reconcile your GST accounts and file your GST on your behalf even if they don’t do your day-to-day bookkeeping. This bookkeeper certainly will. That said, diving into the GST on a file you’re not familiar with does take more time than filing GST for a regular client.
Assuming your ITCs add up to an amount that you consider juicy enough to claw back from the government, then registering for GST is definitely something you want to look into. Registering is a fairly painless process and can be accomplished with some quick googling and following the links. Once you’ve registered and start collecting GST FOR THE LOVE OF PENGUINS KEEP THE GST TO BE REMITTED IN A SEPARATE ACCOUNT. You’ll thank me later.
Questions? Comments? Concerns? Let’s chat! Seriously guys, I’m self-isolating with my partner going on three weeks now. Please talk to me.
Stay safe y’all!