The Small Supplier Threshold: When Your Business Must Start Charging GST and QST

Your sales have gone past 30,000 dollars this year and you're not sure whether you need to start charging GST and QST. The answer doesn't come from your annual revenue. It comes from a specific test that the Canada Revenue Agency and Revenu Québec apply quarter by quarter.

The 30,000 dollar threshold, and how it's actually calculated

A business counts as a small supplier as long as its total taxable supplies in Canada stay at or under 30,000 dollars in any single calendar quarter, and also at or under 30,000 dollars across the four calendar quarters right before that. Both tests run at the same time, and crossing either one changes your status.

That total also adds in sales made by any associated businesses you operate, not just the one in question. If you run two related businesses under different names, combine both figures before comparing them to the threshold.

The four-quarter test can catch a business whose sales look modest each quarter. A shop bringing in 9,000 dollars a quarter for four quarters straight adds up to 36,000 dollars. It crosses the cumulative threshold even though no single quarter on its own went past 30,000.

What counts toward the total, and what doesn't

The test applies to taxable supplies: sales, rentals, services rendered, and property exchanged or bartered. A few amounts are left out of the total.

• The GST and QST you collected
• Revenue from financial services
• Proceeds from selling a capital asset used in the business, such as a vehicle or a building

What happens on the day you cross the threshold

If you go past 30,000 dollars within a single calendar quarter, you stop being a small supplier immediately, including on the sale that put you over. That means you already have to charge tax on that exact sale, not just on the ones that follow it.

A seasonal business can cross this line without its yearly revenue looking high at all. A shop that does most of its business in November and December can pass 30,000 dollars in that one quarter alone, even if the rest of the year is quiet. It's the single-quarter test that applies there, not the annual total.

If instead you cross the threshold cumulatively, spread across four straight quarters without any single one going over 30,000 on its own, you stop being a small supplier at the end of the calendar month that follows those four quarters. The moment your status changes isn't fixed. It depends on which way you crossed the line.

The deadline to register

The CRA and Revenu Québec both expect your registration application in before your first taxable sale that falls outside small-supplier status. On the federal side, the CRA sets that out as a 29-day window from the point you stop being a small supplier.

Don't let that window slip by while you wait for year-end. The test runs quarter by quarter, not once a year. A business that only checks its sales when filing taxes can cross the threshold without noticing, and end up owing tax it never collected from customers.

Exceptions that apply no matter what you earn

Some businesses have to register from their very first sale, regardless of the 30,000 dollar threshold. That's the case for taxi drivers and commercial ride-share drivers under GST rules.

In Quebec, QST rules impose the same obligation on tobacco retailers, sellers of new tires, and sellers of new or used road vehicles, no matter how much they sell.

Registering before you're required to

A business under the threshold can still choose to register voluntarily. The upside is being able to claim an input tax credit and an input tax refund on purchases tied to its taxable sales, which lowers the real cost of those purchases.

The downside is that you then have to charge, collect and remit tax from that point on, on every taxable sale, even the ones under 30,000 dollars. Before registering voluntarily, work out whether the tax you'd recover on your purchases outweighs the paperwork registration adds.

What registration changes on your receipts and your prices

Once registered, every taxable sale has to show GST and QST on the receipt handed to the customer, whether they paid cash, debit or credit. How they paid has no bearing on whether tax needs to be collected.

Check that tax is set up correctly in your point-of-sale system or invoicing software before your registration date, not after. A posted price that hasn't been updated with the right tax creates a gap you'll have to explain, and sometimes absorb, once your first return is filed.

Do the math now rather than at year-end: add up your taxable supplies for the current quarter and the three before it. If the total is getting close to 30,000 dollars, tell your accountant before the sale that tips you over, not after, and confirm that tax can be switched on in your point-of-sale system the moment your registration is confirmed.