Why registering for GST/HST pays off
The other excellent reason for collecting GST and HST is that it pays off in dollars and cents.
One of the good benefits of being self-employed is that whenever you collect these taxes, you simply give the federal government the quantity you paid in GST or HST in your deductible business expenses.
For freelance writers like us, that is the sales tax we pay on printer paper, web services, skilled development seminars, and more. The government essentially allows us to deduct the sales tax we pay on deductible expenses from the sales tax we charge our clients. We then pocket the difference. The amount we save every year is roughly enough to pay for a visit to Europe.
HST quick method or detailed method?
The excellent news is that we needn’t add up every GST and sales tax we pay on our expenses to profit. That’s because we use the “quick method” for our calculations.
The government offers you two ways to pay GST and PST/HST rates: the “detailed method” and the “fast method.” With the fast method, you just pay 3.6% of the 5% GST you collect. For provinces with HST, it is a percentage of the HST: So in Ontario, you simply pay 8.8% of the 13% you collect to the federal government.
The advantage of the fast method is that it is way less work. All you’ve got to do is add up how much sales tax you charge your clients or customers. My spouse and I take advantage of the fast method and may easily do our calculations using an Excel spreadsheet. You haven’t got to maintain an in depth record of the sales tax you pay on all of the pens, paper, printer cartridges, etc. that you just claim as deductible expenses.
There’s one other profit to using the fast track method. Governments provide a credit of a further 1% on the primary $30,000 of gross income. In Ontario, for instance, you pay 7.8% (as an alternative of 8.8%) of the 13% HST you collect on that quantity and pocket the remaining 5.2%. However, when you use the fast track method, you will need to add the credit to your total income whenever you file your income tax return.
The itemized method is more laborious because you’ve got so as to add the GST and PST/HST you paid on each of your expenses and subtract it from the taxes collected to find out the quantity you pay. However, this calculation method is beneficial in case your taxable expenses are relatively high, equivalent to greater than 50% of your income. The advantage of the itemized method is that you just would not have so as to add the quantity withheld to your income whenever you file your income tax return.
