The question, “Do I need to charge GST or HST as a contractor in Canada?” is a fundamental one, particularly for independent contractors, consultants, and small business owners. Understanding the rules surrounding GST/HST registration, collection, and remittance is not only crucial for compliance but also for effective financial management. At Indus Canada Chartered Professional Accountant (CPA), we guide contractors through the complexities of taxation, ensuring you remain compliant while maximizing available benefits.
Why Understanding GST/HST Matters for Contractors
The Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) apply to most goods and services across Canada. While GST is a federal tax, HST is a harmonized version administered jointly by the federal government and certain provinces. As an independent contractor, knowing when and how to apply these taxes is essential for avoiding penalties, ensuring proper invoicing, and optimizing cash flow.
Importantly, GST/HST is a consumption tax; it is levied on the final consumer, not the business itself. This means contractors generally act as intermediaries, collecting and remitting tax on behalf of the Canada Revenue Agency (CRA).
Key Considerations for Contractors
1. Registration Thresholds and Exceptions
Contractors must register for GST/HST once their taxable sales exceed $30,000 in any rolling 12-month period. Failing to register within 30 days of exceeding this threshold can result in interest and penalties.
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Small Suppliers: Contractors with sales below $30,000 are considered “small suppliers” and are not obligated to register. However, voluntary registration may still be beneficial, as it allows access to Input Tax Credits (ITCs) to recover GST/HST paid on business expenses.
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Corporations vs. Sole Proprietors: Regardless of your business structure, the $30,000 threshold applies. That said, incorporated contractors often benefit from more structured tax planning opportunities.
2. Charging GST/HST on Taxable Supplies
Once registered, contractors are required to charge GST/HST on the full invoice amount, including both materials and labour.
Example:
If you purchase $100 worth of materials and invoice a client $1,000 for a project, GST/HST must be applied to the entire $1,100.
This ensures compliance and prevents under-reporting, which could otherwise trigger CRA audits.
3. Claiming Input Tax Credits (ITCs)
One of the advantages of registration is the ability to recover the GST/HST you pay on eligible business expenses. These Input Tax Credits allow contractors to offset the tax collected from clients with the tax paid on:
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Materials and supplies
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Business-related services (e.g., subcontractors, accounting, legal)
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Office equipment and software
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Vehicle expenses (when used for business)
Effectively, ITCs reduce your tax liability and improve overall profitability.
4. Filing and Remitting GST/HST
Contractors must file periodic GST/HST returns based on their sales volume:
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Annual filing: Businesses under $1.5 million in revenue (most independent contractors).
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Quarterly filing: Businesses between $1.5 million and $6 million.
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Monthly filing: Businesses over $6 million.
Filing is generally done through the CRA’s My Business Account portal, which also facilitates electronic remittances.
Do Contractors Charge GST/HST on Labour?
This is a common area of confusion. While GST/HST applies broadly, there are nuances:
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Taxable Labour: Services such as construction, renovation, and repairs generally attract GST/HST. Contractors in these fields are required to charge tax on both materials and labour.
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Exempt Services: Certain services, such as some healthcare or educational activities, are exempt from GST/HST. In these cases, contractors do not charge tax on labour.
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Provincial Variations: Rates differ by province. For instance, Ontario applies 13% HST, while provinces like Alberta only apply the federal 5% GST.
Clear communication is vital when issuing quotes or invoices; always specify whether taxes are included or applied separately.
Obtaining a GST/HST Number
Registration can be completed in two ways:
1. Online Registration via CRA’s My Business Account
This is the fastest and most efficient method. Contractors must provide:
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Business name and address
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Social Insurance Number (SIN)
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Business type
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Estimated annual sales
Upon approval, the CRA issues a Business Number (BN) with a GST/HST account identifier.
2. Paper-Based Application (Form RC1)
Alternatively, contractors can download, complete, and mail or fax Form RC1 (Request for a Business Number) to the CRA.
Collecting and Remitting GST/HST – Step by Step
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Determine the Correct Rate
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5% GST (federal rate, e.g., Alberta).
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13% HST (Ontario).
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15% HST (New Brunswick, Nova Scotia, PEI, Newfoundland & Labrador).
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Apply GST/HST to the Invoice
Example: A $100 service in Ontario → $113 total (including 13% HST). -
Collect GST/HST from Clients
Ensure payments include the tax component. -
Issue a Compliant Invoice
Must include:-
Business name and GST/HST number
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Customer’s name and address
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Description of goods/services
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Amount charged and tax applied
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Remit GST/HST to the CRA
Based on filing frequency, remit via online banking, credit card, or the CRA portal.
Why Work with Indus Canada Chartered Professional Accountant?
At Indus Canada CPA, we don’t just ensure compliance; we help contractors strategically manage their GST/HST obligations. From determining whether your services qualify as taxable or exempt to optimizing Input Tax Credits, to advising on voluntary registration, our expert tax accountants provide personalized solutions tailored to your business model.
We go beyond compliance by helping contractors:
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Avoid penalties and CRA scrutiny
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Improve cash flow management
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Maximize tax savings through proactive planning
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Simplify GST/HST filing and reporting obligations
With our expertise, you gain peace of mind knowing that your tax matters are handled with precision and strategy, allowing you to focus on what you do best: growing your contracting business.
