Complete and file a GST/HST return - 1. Calculate the net tax

1. Calculate the net tax

How do you calculate your net tax?

Depending on your business you may have to use a different method to calculate your net tax. Use the following sections to know how to calculate.

If you are a selected listed financial institution, see Guide RC4050, GST/HST Information for Selected Listed Financial Institutions.

Most businesses

How to calculate your net tax for most businesses

For most businesses, this calculation is straightforward. Generally, under the regular method, the GST/HST is calculated on every supply of a taxable property or service (other than zero-rated supplies, which are taxable at 0%. However, to help reduce paperwork and bookkeeping costs, most small businesses can use the quick method of accounting to calculate their GST/HST net tax remittance. Under the quick method, the GST/HST paid or payable is calculated based on a percentage.

Calculating your net tax using the regular method
Calculating your net tax using the quick method

Calculating your net tax using the regular method

You have to calculate your net tax for each GST/HST reporting period and report this on your GST/HST return. To do so, calculate:

the GST/HST collected or that became collectible by you on your taxable supplies made during the reporting period; and
the GST/HST paid and payable on your business purchases and expenses for which you can claim an ITC.

The difference between these two amounts, including any adjustments, is called your net tax. To assist you in calculating the net tax and completing your GST/HST return using the regular method, consult GST/HST return working copy and the line-by-line instructions.

Example

You collected a GST/HST of $1,000 from your clients. You are also eligible to claim ITCs of $800 for the GST/HST you paid on business expenses. If no further adjustments are required on the return, your net tax would be $200.

Now that you have calculated your net tax as $200, you would have to pay this amount, and file your return by its due date.

You may also use the simplified method for claiming ITCs to make the net tax calculations easier. For more information on claiming ITC's, see Input tax credits.

Calculating your net tax using the quick method

The quick method is another way to calculate the GST/HST you have to remit. Most small businesses can use this method to reduce their paperwork and bookkeeping costs.

You can start using this method if the annual worldwide revenue from your taxable supplies and those of your associates (including zero-rated supplies) is no more than $400,000 (including the GST/HST) in any four consecutive fiscal quarters over the last five fiscal quarters.

Certain supplies are not eligible for the quick method calculation.

Certain businesses cannot use the quick method.

To calculate the net GST/HST to remit, you multiply your taxable supplies (including the GST/HST) made during the reporting period by the applicable quick method remittance rate(s). The quick method remittance rates are less than the GST/HST rates of tax that you charge.

If you use this method, you have to continue using it for at least a year.

You can choose to use this method by completing Form GST74, Election and Revocation of an Election to use the Quick Method of Accounting. For more information, see Guide RC4058, Quick method of accounting for GST/HST.

Input tax credits

You cannot claim input tax credits (ITCs) for your operating expenses if you use the quick method. The quick method remittance rates take into account the GST/HST you pay on these purchases and expenses.

You can claim ITCs for certain purchases such as the following:

purchases of land
purchases for which you can claim a capital cost allowance for income tax purposes, such as computers, vehicles, and other large equipment and machinery.

You are entitled to a 1% credit on the first $30,000 of your eligible supplies (including the GST/HST) on which you must collect the GST at 5% or the HST at the applicable rate (see the GST/HST rates) in each fiscal year.

Charities

How to calculate your net tax if you are a charity

As a charity, you have to use another method assigned to charity to calculate the net tax. You remit 60% of the GST/HST you collect and claim ITCs only on certain items. When using the net tax calculation assigned to charities, special rules apply for claiming ITCs.

Calculating your net tax using the method assigned to charities

To calculate your net tax remittance for a reporting period using the net tax calculation for charities, follow these steps:

Step 1 - Determine the total of:

60% of the GST/HST you charged, whether you have collected it or not, on most taxable supplies
all of the GST/HST you charged on taxable sales of capital and real property, including deemed taxable sales of capital and real property
all of the GST/HST deemed collected on property or services you appropriated to, or for the benefit of, a member or relative of a member of the charity (for example, an inventory item or other asset you gave to this person)
all of the GST/HST deemed collected on any property or service you provided to an employee that is a taxable benefit for income tax purposes
all of the GST/HST collected or collectible on supplies of goods you made as acting as an agent, or auctioneer and agent where you have to account for the tax
all of the GST/HST collected from a person by mistake
all amounts you have to consider as GST/HST because of the recovery of a bad debt for a taxable sale of real property or capital property
the total GST/HST adjustments for the reporting period on acquisitions of real property or capital property for which you previously claimed ITCs
if you received approval from the Canada Revenue Agency to temporarily stop filing GST/HST returns for specific reporting periods in which you had $1,000 or less of net GST/HST to report, add any amount you carried forward from those periods

Enter this total on line 105 if you are filing your return electronically or on line 103 if you are filing a paper GST/HST return.

Step 2 - Determine the total of:

all ITCs you are claiming for purchases of, or improvements to, real property and capital property to use more than 50% in commercial activities, including the deemed tax payable when capital property is brought into a participating province to use in your commercial activities
any ITC on your acquisition of, or improvement to, real property based on its percentage of use in your commercial activity (must be more than 10%) and for which you filed Form GST26, Election or Revocation of an Election by a Public Service Body to Have an Exempt Supply of Real Property Treated as a Taxable Supply, that is effective the day you acquired the property
any ITC equal to the basic tax content of real property just before an election (Form GST26) filed by you takes effect to treat that property as a taxable supply and any ITC on the deemed purchase of that property based on its percentage of use in your commercial activity (must be more than 10%), where the election takes effect on a day other than the day you acquired the property or became a registrant
all ITCs for goods you bought, imported or brought into a participating province that are sold by an agent or an auctioneer acting as your agent
all ITCs for goods you imported on behalf of a non-resident for use exclusively in your commercial activities and sold when you are acting as an agent, or an auctioneer and an agent for the non-resident person
60% of the total of the GST/HST adjustments (for example, for price reductions and rebates for foreign conventions, for short-term accommodation in tour packages, and for artistic works produced for export) or of point-of-sale rebates for the provincial part of the HST that the charity gave in the reporting period (no amount should be included for any Ontario First Nations point-of-sale relief credited in the reporting period a the charity may claim this amount by filing Form GST189, General Application for Rebate of the GST/HST, using code 23)
all amounts for GST/HST adjustments you gave for tax charged in excess of the GST/HST collectible on certain supplies of property and services
all GST/HST adjustments you gave for tax collected in error or bad debts you wrote off during the period for the sale of real property or capital property
all GST/HST adjustments for new housing rebates you credited during the period
all ITCs that you were entitled to claim and that you carried forward from a reporting period when you did not have to use this net tax calculation for charities

Enter this total on line 108 if you are filing your return electronically or on line 106 if you are filing a paper GST/HST return.

Step 3 - Subtract your total in Step 2 (line 108 or line 106) from your total in Step 1 (line 105 or line 103). The result is your net tax. Enter this amount on line 109 on your GST/HST return.

Example

You are a charity resident in Alberta, and you are registered for the GST/HST. You operate an art gallery and use the net tax calculation for charities. Your main revenue is taxable gallery admissions.

During your reporting period, you earned revenues from exempt supplies of parking and admissions to a fund-raising dinner. In addition, you purchased computer equipment to use more than 50% in your commercial activities. You also purchased and installed a ventilation system in a building that you own and use more than 50% in commercial activities.

Your taxable revenues and expenses are as follows:

Taxable revenues:

Gallery admissions: $20,000

Sales from gift shop: $5,000

Total: $25,000

GST collected ($25,000 × 5%): $1,250

Taxable purchases and expenses:

Contracted services (maintenance): $3,000

Utilities: $1,500

Ventilation system: $9,200

Computer equipment: $2,000

Gift shop inventory purchases: $2,500

Catering services for fundraising dinner: $3,500

Total: $21,700

GST paid on purchases and expenses ($21,700 × 5%)=$1,085

Net tax calculation for charities

Step 1

Enter $750 on line 105 if you are filing your return electronically or on line 103 if you are filing a paper GST/HST return (60% of the $1,250 GST collected).

Step 2

You can claim ITCs for the GST you paid for the ventilation system (improvement to real property) and for the computer equipment (capital property purchase) that you intend to use more than 50% in your commercial activities.

ITC 5% × ($9,200 + $2,000) = $560

Step 3

The amount you calculate in Step 1 less the amount you calculated in Step 2 equals your net tax before any rebates.

Net tax $750 – $560 = $190

Enter this amount on line 109.

You would also be entitled to claim a PSB rebate for the remaining GST/HST paid.

Can you choose not to use the net tax calculation method assigned to charities?

A charity as a whole can elect not to use the net tax calculation method assigned to charities if it meets one of the following conditions:

the charity makes supplies outside Canada in the ordinary course of your business
the charity makes zero-rated supplies in the ordinary course of your business
the charity makes all or substantially all (90% or more) taxable supplies

To make this election, complete Form GST488, Election or Revocation of an Election Not To Use the Net Tax Calculation for Charities. Once the election has been made, you can calculate the charity's net tax using the regular method or quick method of accounting.

What other method of calculation can you use if you are a designated charity?

Designated charities may use the special quick method of accounting for public service bodies to calculate their net tax.

A designated charity is a charity that has applied for designation and has been designated by the Minister of National Revenue to have certain exempt services it provides made taxable. To qualify for this designation, a charity must meet the following two conditions:

one of the main purposes of the charity is to provide employment or employment-related assistance to individuals with disabilities
the charity must supply, on a regular basis, certain services that are performed, in whole or in part, by individuals with disabilities

The application must be sent to:

Director, Public Service Bodies and Governments Division
Excise and GST/HST Rulings Directorate
14th Floor, Tower A, Place de Ville
Ottawa, Ontario K1A 0L5

Designated charities cannot use the net tax calculation method for charities.

In addition, you can claim a public service bodies' rebate for the GST/HST paid or payable on your eligible purchases and expenses for which you cannot claim ITCs or any other rebate, refund or remission, whether the GST/HST relates to taxable or exempt activities.

Public service bodies

How to calculate your net tax if you are a public service body

You have to calculate your net tax for each GST/HST reporting period and report this on your GST/HST return. Use the following amounts when calculating your net tax:

the GST/HST you collected or that is collectible on your taxable supplies made during the reporting period; and
the input tax credits (ITCs) you can claim for the GST/HST you paid or that was payable on your business purchases and expenses.

What is the special quick method of accounting for public service bodies?

To help reduce your paperwork and bookkeeping costs, your organization may qualify to use the special quick method of accounting for public service bodies to calculate your GST/HST net tax.

For more information, see Special quick method of accounting for public service bodies.

What happens if you have provided a taxable benefit to an employee?

If you are considered to have collected the GST/HST on a taxable benefit, you have to calculate the amount of the GST/HST due. The amount of the GST/HST you are considered to have collected on a taxable benefit is based on a percentage of the value of the benefit for GST/HST purposes. The percentage rate you use depends on whether or not it is for an automobile operating expense benefit and the province or territory in which the employee ordinarily reported to work. For more information, see Remitting GST/HST on employee benefits.

The following examples will help you apply the rules for remitting the GST/HST on employee benefits.

Example 1 - Remitting the GST/HST on automobile benefits in a non-participating province

As a corporation registered for the GST/HST, you buy a vehicle that is...

used more than 50% in commercial activities
made available to your employee during 2015.

The last establishment where the employee ordinarily reported in the year for the corporation was located in Manitoba.

You...

calculated a taxable benefit (including GST and PST) of $4,800 on the standby charge
calculated an operating expense benefit of $600.

Your employee reimbursed you $1,800 for the automobile operating expenses within 45 days of the end of 2015. You did not include this amount as a taxable benefit.

You claimed an input tax credit (ITC) for the purchase of the automobile and on the operating expenses. Since the benefit is taxable under the Income Tax Act, and no situations described in Situations where you are not considered to have collected the GST/HST apply, you calculate the GST remittance as follows:

Step 1: Calculate the GST considered to have been collected on the standby charge benefit
Multiply the taxable benefit reported on the T4 slip ($4,800) by the appropriate provincial fraction (4/104 for Manitoba). The GST considered to have been collected on the standby charge benefit would be $184.62.

Step 2: Calculate the GST considered to have been collected on the operating expense benefit
First, add the taxable benefit reported on the T4 slip ($600) and the employee’s partial reimbursement of operating expenses ($1,800). Then multiply the result of this addition ($2,400) by the appropriate provincial percentage (3% for Manitoba). The GST considered to have been collected on the operating expense benefit is $72.00.

Step 3: Calculate the total GST to be remitted on the automobile benefit
The total GST to be remitted is the sum of the result of step 1 ($184.62) and step 2 ($72.00). The total GST to be remitted on the automobile benefit is $256.62.

You are considered to have collected the GST in the amount of $256.62 at the end of February 2016. You have to include this amount on your GST/HST return for the reporting period that includes the last day of February 2016.

Example 2 - Remitting the GST/HST on automobile benefits in a participating province

Using the same facts as in the example above, assume that the last establishment to which the employee ordinarily reported in the year for the corporation was located in New Brunswick. In this case, you would calculate the HST remittance as follows:

Step 1: Calculate the GST considered to have been collected on the standby charge benefit
Multiply the taxable benefit reported on the T4 slip ($4,800) by the appropriate provincial fraction (12/112 for New Brunswick). The GST considered to have been collected on the standby charge benefit would be $514.29.

Step 2: Calculate the GST considered to have been collected on the operating expense benefit
First, add the taxable benefit reported on the T4 slip ($600) and the employee’s partial reimbursement of operating expenses ($1,800). Then multiply the result of this addition ($2,400) by the appropriate provincial percentage (9% for New Brunswick). The GST considered to have been collected on the operating expense benefit is $216.00.

Step 3: Calculate the total GST to be remitted on the automobile benefit
The total GST to be remitted is the sum of the result of step 1 ($514.29) and step 2 ($216.00). The total GST to be remitted on the automobile benefit is $730.29.

You are considered to have collected HST in the amount of $730.29 at the end of February 2016. You have to include this amount on your GST/HST return for the reporting period that includes the last day of February 2016.

Example 3 - Long service award

You bought a watch for $560 (including the GST/HST and PST) for your employee to mark the employee's 25 years of service. It was the only gift or award provided to the employee in the year. You reported a taxable benefit of $60 in box 14 and under code 40 on the employee's T4 slip. You could not claim an ITC because you bought the watch for the employee's exclusive personal use and enjoyment. Since you cannot claim an ITC, you are not considered to have collected the GST/HST and, as a result, you will not have to remit the GST/HST on the benefit.

Example 4 - Special clothing

You provided your employee with safety footwear designed to protect him or her from hazards associated with his or her employment. Since we do not consider the footwear to be a taxable benefit for the employee, you are not considered to have collected the GST/HST on the footwear and you do not have to remit any tax. However, you can claim an ITC for any GST/HST that you paid on the footwear.

For more information on how to determine the percentage, see Input tax credits.

What happens if you have charged the GST/HST and you have not collected it yet?

You are liable for the GST/HST you charged on goods or services on the day you receive the payment or on the day the payment is due, whichever is earlier. We usually consider payment to be due on the date you issue an invoice or the date specified in an agreement, whichever comes first.

If you issue an invoice before you receive the payment, you have to include the GST/HST charged on this invoice in the reporting period that includes the date of the invoice.

What happens if you have charged the GST/HST and you were never paid for it?

You may have already included the GST/HST on a credit sale on your GST/HST return, sent any outstanding net tax, and took reasonable steps to collect the debt. However, that sale became in whole or in part a bad debt. If this is your situation, you may be eligible to recover the GST/HST as a tax adjustment on your line 105 calculation if you are filing electronically or on line 104 if you are filing a paper GST/HST return. For more information, see How do you report bad debts and bad debt adjustments?

What happens if you didn’t charge the GST/HST when you were supposed to?

If you are required to charge the GST/HST, but did not charge it, you are still liable for the tax.

You have to include the GST/HST that you should have charged in the reporting period during which you should have charged the tax.

What happens if you were charged the GST/HST and you have not yet paid it?

When you calculate your ITCs, you can include the GST/HST for purchases and expenses for which you have been invoiced but not yet paid. This means that you can claim an ITC on your return for the GST/HST you owe to your suppliers before you pay the invoice.

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Date modified:: 2016-11-22

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