Mandatory Tax Registrations in Canada for Entity Setup

An Overview

At its core, Canada’s tax system involves a blend of federal and provincial regulations, akin to its cultural tapestry. The Canada Revenue Agency (CRA) is your primary contact for federal tax matters, but it’s crucial to also acquaint yourself with the specific tax requirements of the province or territory where your business will operate.

Federal Tax Registrations

The Business Number: Your Business’s First Step

A Business Number (BN) from the CRA is akin to a gateway for engaging with federal tax systems, serving as your business’s identifier for tax matters.

To obtain a Business Number (BN) in Canada, which is essential for conducting business activities and tax matters, follow these steps:

• Determine Eligibility: Your business needs a BN if it requires one or more CRA program accounts.
• Gather Information: Before applying, have all necessary information on hand, including your business name, address, the nature of your business, and personal information about the owner(s) and director(s).
• Choose Your Registration Method: You can register for a BN online through the Canada Revenue Agency (CRA) website, by mail or fax with the appropriate forms, or over the phone for certain types of businesses.
• Complete the Registration Process:
  • Online: The fastest and most convenient method through the CRA’s Business Registration Online (BRO) service.
  • By Phone: For certain types of businesses, calling the CRA’s Business Enquiries line is an option.
  • By Mail or Fax: Download, complete, and send the appropriate form from the CRA’s website.
• Receive Your BN: Once your application is processed, you’ll receive your Business Number. This number will be used as your primary business identifier for interactions with the CRA and for managing various tax accounts (e.g., GST/HST, payroll).

See our post for a full guide on the entity setup process in Canada. 

GST/HST Registration: A Dual Role

Sales tax in Canada encompasses the Goods and Services Tax (GST) and the Harmonized Sales Tax (HST), the latter being a fusion of the GST with provincial sales taxes in certain regions. Registering for GST/HST not only complies with legal requirements but also allows businesses to reclaim input tax credits on their operational expenses.

What are GST and HST?

• GST (Goods and Services Tax): A federal tax of 5% applied to most goods and services sold or provided in Canada.
• HST (Harmonized Sales Tax): A combined tax that merges the GST with provincial sales taxes in certain provinces, with rates ranging from 13% to 15%, depending on the province.

Who Needs to Register?

• Mandatory Registration: Businesses that provide taxable supplies in Canada and have a worldwide gross revenue exceeding $30,000 in any four consecutive calendar quarters must register for GST/HST.
• Small Supplier Exception: If your business earns $30,000 or less in worldwide gross revenue over four consecutive calendar quarters, you’re considered a small supplier and GST/HST registration is optional.
• Voluntary Registration: Even if you’re a small supplier, there are benefits to registering voluntarily, such as claiming Input Tax Credits (ITCs) to recover GST/HST paid on business expenses.

How to Register

1. Determine Your Eligibility: Understand whether your business must register or if it’s beneficial to register voluntarily.
2. Gather Necessary Information: Before registering, you’ll need details about your business, such as legal name, business number (if already obtained), business address, and the nature of your business.
3. Choose a Method of Registration: You can register for GST/HST online through the CRA’s Business Registration Online (BRO) service, by mail, fax, or by phone.
4. Complete the Registration Process:
   • Online: This is the most efficient method, allowing you to register through the CRA website.
   • By Mail or Fax: You can fill out the RC1, Request for a Business Number form, and send it to the appropriate address or fax number.
   • By Phone: For a more direct approach, you can call the CRA and complete the process over the phone.

After Registration

• Reporting Periods: You will be assigned reporting periods for your GST/HST returns, which can be monthly, quarterly, or annually based on your revenue. It’s crucial to adhere to these periods and file your returns on time.
• Collecting and Remitting GST/HST: Once registered, you are responsible for collecting GST/HST on taxable supplies and remitting it to the CRA, minus any ITCs you’re eligible to claim.
• Record Keeping: Maintain thorough records of your sales, GST/HST collected, and ITCs, as you’ll need these for your GST/HST returns and in case of any CRA audits.

Benefits of Registration

• Input Tax Credits: One of the main benefits of registering for GST/HST is the ability to claim ITCs, which can significantly offset the GST/HST you owe to the CRA.
• Credibility with Customers: Registration can enhance your business’s credibility, as customers may perceive your business as more legitimate when you charge and remit GST/HST.

Payroll Taxes: Ensuring Employee Contributions

For businesses with employees, payroll tax registration covers contributions to the Canada Pension Plan (CPP), Employment Insurance (EI), and withholding income taxes—essential for maintaining your workforce’s financial health.

Provincial Tax Registrations

Provincial Sales Taxes (PST): Navigating Local Taxes

PST refers to sales taxes that are imposed by individual provinces on the sale of goods and certain services. These taxes are applied at the point of sale and vary by province. PST rates and the types of goods or services taxed can differ significantly across provinces.

Provinces with PST

• British Columbia (BC): Applies PST at a general rate of 7% on most goods and some services.
• Saskatchewan (SK): Has a PST rate of 6% on most goods and services.
• Manitoba (MB): Charges a PST rate of 7% on most goods and certain services.
• Quebec (QC): Though not called PST, Quebec administers the Quebec Sales Tax (QST), which functions similarly, with a current rate of 9.975%.
• Prince Edward Island (PEI): Uses the Harmonized Sales Tax (HST) instead of a separate PST but is included here for its unique tax structure blending GST and a provincial component.

Who Needs to Register for PST?

Businesses that sell goods or provide taxable services in provinces that levy PST must register to collect and remit this tax if they have a physical or economic presence in the province. This includes:

• Having a physical location in the province.
• Soliciting sales through advertising targeted at residents of the province.
• Carrying goods for sale into the province regularly.

How to Register for PST

The registration process varies by province but generally involves:

1. Determine if You Need to Register: Assess your business activities in relation to PST requirements in the province(s) where you operate.
2. Gather Necessary Information: Prepare information about your business, including business name, address, and type of goods/services sold.
3. Submit Your Application: Most provinces allow you to register for PST online through the respective provincial government or tax authority’s website. Alternatively, you can register by mail or in person at designated offices.

After Registration

• Collecting PST: Once registered, you are required to collect PST from your customers on taxable sales at the applicable rate for the province.
• Filing and Remittance: Regularly file PST returns and remit the collected taxes to the provincial tax authority. Filing frequencies and deadlines vary by province and may depend on your tax liability.

Employer Health Tax (EHT): Contributing to Public Health

The Employer Health Tax (EHT) is a provincial levy in specific regions, designed to fund public health services, highlighting the need for businesses to contribute to community welfare.

Industry-Specific Tax Considerations

Beyond general tax registrations, specific industries may face additional requirements, from excise taxes for certain products to environmental levies. Understanding these nuances is critical for businesses in specialized sectors.

Navigating the Registration Process

Embarking on the tax registration process involves identifying applicable taxes, gathering necessary documentation, and submitting applications—preferably online for efficiency. Professional advice can streamline this process, ensuring accuracy and compliance.

Maintaining Compliance

Post-registration, businesses must adhere to ongoing reporting and remittance obligations to avoid penalties. Regular compliance not only safeguards against legal issues but also reinforces your business’s reputation in Canada.

Conclusion

Embarking on business operations in Canada entails a comprehensive understanding and adherence to its tax registration processes. While the journey may seem complex, proper planning and professional guidance can pave the way for a successful establishment in the Canadian market.

Appendix: Essential Resources

• CRA Website: Primary source for federal tax registration and guidance.
• Provincial Tax Authorities: For detailed information on provincial and territorial tax obligations.

If you are planning to start a business in Canada, it is important to understand the tax system and mandatory tax registrations. Tax registrations are essential for businesses to comply with tax laws and regulations in Canada. In this blog post, we will discuss the mandatory tax registrations in Canada.

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This article does not constitute legal advice.