GST for Trades Businesses

Understanding GST obligations is essential for trades business owners in Canada.

When you start earning money from your trades business, one of the first things you need to understand is how the Goods and Services Tax works. GST is a federal tax of 5% that applies to most goods and services sold in Canada, including trades services like electrical work, plumbing, HVAC, carpentry, and general contracting. In British Columbia there is no provincial sales tax on services, so the 5% GST is the only consumption tax most trades businesses charge on their labour. However, some materials and goods may also be subject to the 7% Provincial Sales Tax.

Many new business owners put off learning about GST until they get a letter from the Canada Revenue Agency. That is the wrong time to learn. Understanding your obligations from the beginning saves money, avoids penalties, and in many cases actually puts money back in your pocket through input tax credits.

When You Must Register

Not every business needs to register for GST right away. The CRA considers you a “small supplier” as long as your total worldwide taxable revenue does not exceed $30,000 in a single calendar quarter or over the previous four consecutive calendar quarters. As a small supplier you are not required to charge or collect GST.

Once your revenue crosses that $30,000 threshold you must register. The effective date of your registration is the day you made the sale that pushed you over the limit, and you are required to start charging GST on that transaction. You then have 29 days to officially register with the CRA.

This catches many trades business owners off guard. A few strong months of project work can push a new business past $30,000 faster than expected, and by that point the GST you should have been collecting is money you now owe the CRA out of your own pocket. Tracking your revenue from the beginning is the simplest way to avoid that situation.

Voluntary Registration

Even if you are below the $30,000 threshold you can choose to register voluntarily, and for most trades businesses there is a strong argument for doing so. Once registered you can claim input tax credits, which allow you to recover the GST you pay on business expenses. Trades businesses spend heavily on materials, tools, equipment, vehicle fuel, and supplies. The GST on all of those purchases can be claimed back.

Consider a small electrical contractor who spends $2,000 a month on materials and supplies. At 5% GST that is $100 a month or $1,200 a year in tax paid on those purchases. A registered business can claim that $1,200 back. An unregistered business cannot. For businesses that spend significantly on materials and equipment, voluntary registration often results in a net benefit even before hitting the $30,000 revenue threshold.

Voluntary registration also signals professionalism. Commercial and industrial clients in particular expect to see GST on invoices and may question whether a business that does not charge GST is operating at a scale worth trusting with their project.

How GST Works in Practice

Once registered you charge 5% GST on your taxable sales and collect it from your customers. You also pay GST on your business purchases throughout the year. When it is time to file your GST return you calculate the difference between what you collected and what you paid.

If you collected more GST than you paid, you remit the difference to the CRA. If you paid more than you collected — which can happen during periods of heavy equipment purchases or material-intensive projects — the CRA sends you a refund. This is one of the key benefits of registration: the system works in both directions.

Input Tax Credits

Input tax credits are the mechanism that allows registered businesses to recover the GST paid on business expenses. Any GST you pay on goods or services used in your commercial activities can be claimed as an ITC on your GST return.

Common expenses that generate input tax credits for trades businesses include materials and supplies purchased for jobs, tools and equipment, vehicle fuel and maintenance, shop or office rent, insurance premiums, accounting and professional services, advertising and marketing expenses, and software subscriptions.

To claim ITCs you need to keep proper records. The CRA requires you to have invoices or receipts showing the supplier’s name, the date, the amount paid, and the GST charged. Good bookkeeping habits are essential. Without proper documentation the CRA can deny your input tax credit claims during an audit.

Filing Your GST Return

How often you file depends on your annual revenue. Businesses with revenue of $1,500,000 or less file annually. Between $1,500,000 and $6,000,000 you file quarterly. Above $6,000,000 you file monthly. Most small trades businesses start with annual filing.

If you file annually your return and any payment owing are due three months after the end of your fiscal year. For a business with a December 31 year-end that means March 31. If you file quarterly the return is due one month after the end of each quarter.

As of 2024 all GST returns must be filed electronically. The CRA’s My Business Account portal or commercial accounting software can be used to file.

The Quick Method

The CRA offers a simplified filing option called the Quick Method for small businesses with annual taxable revenue (including GST) of $400,000 or less. Instead of tracking GST on every individual expense, you charge the standard 5% GST on sales but remit a lower fixed percentage of your revenue to the CRA. The difference between what you collect and what you remit is yours to keep.

Whether the Quick Method benefits your business depends on how much you spend on materials relative to your revenue. Businesses with high material costs tend to benefit more from the regular method because their input tax credits are substantial. Businesses that are mostly labour with lower material costs may benefit from the Quick Method. An accountant familiar with trades businesses can help you determine which approach works better for your situation.

Common Mistakes

The most common GST mistakes made by new trades business owners are not tracking revenue and missing the $30,000 registration threshold, failing to charge GST after registration becomes mandatory, not keeping proper receipts and losing input tax credit claims, mixing personal and business expenses which complicates GST tracking, and filing late which triggers interest and penalties from the CRA.

Late filing penalties start at 1% of the amount owing plus 0.25% for each month the return is late, up to 12 months. Repeated late filing can increase those penalties significantly. The simplest way to avoid all of these is to register early, keep clean records, and file on time.

PST on Materials

While this chapter focuses on GST, trades businesses in BC should also be aware that the 7% Provincial Sales Tax applies to most goods and materials purchased for use in the province. Unlike GST, there is no input tax credit system for PST — it is a final cost to the business. PST paid on materials should be factored into your estimates and pricing. Some exemptions exist for specific types of equipment and machinery used in certain industries, so it is worth checking whether any of your purchases qualify.

Watch

Watch this walkthrough on how to file and pay your GST/HST return as a Canadian small business owner, including how to use the CRA’s online filing system.

Practice

Test your understanding of GST with this quick knowledge check. You can retry as many times as you like.

Reflect

Think about your current or planned trades business and how GST applies to it.

• Based on the work you plan to do, how quickly might your revenue reach the $30,000 threshold? Would voluntary registration make sense for you from day one?
• What are your biggest business expenses? How much GST are you paying on those purchases that you could potentially recover through input tax credits?
• What bookkeeping system would you use to track GST collected and GST paid so that filing your return is straightforward rather than stressful?