The question, “Do I need to charge HST or GST as a contractor?” is pivotal, particularly for independent contractors in Canada. Understanding whether contractors charge tax on labour
and comprehending the HST/GST rules for contractors is paramount.
As a business owner, the responsibility of managing expenses, tax obligations, and legal matters falls squarely on your shoulders. And there’s no need to fret – we’re here to help you understand the ins and outs of HST (Harmonized Sales Tax) and GST (Goods and Services Tax), including when it’s crucial to apply them.
GST/HST, classified as a consumption tax, is exclusively levied on the final sale of goods and services to end consumers. It’s worth noting that businesses aren’t subject to paying GST/HST on goods and services procured for resale.
Importance of Understanding GST/HST Obligations For Contractors
GST and HST are levies applicable to the majority of goods and services sold or provided in Canada.
While GST operates at the federal level, HST represents a unified adaptation of GST, overseen by the federal government alongside one or more provinces.
Invoicing Clients and Collecting Taxes
Contractors registered for GST/HST must include tax details on every client invoice. Each invoice should clearly show the subtotal, GST/HST rate, tax amount, and total payable. It must also display the contractor’s business name, address, and GST/HST number.
After collecting the tax, contractors must remit GST/HST to the CRA based on their filing schedule (monthly, quarterly, or annually). Keeping accurate invoices and payment records ensures compliance and supports input tax credit claims.
Determining Applicable GST/HST Charges
Understanding when and how to register for GST/HST as an independent contractor GST Canada, and when to levy these taxes, is pivotal for maintaining compliance. Here’s a breakdown of essential points to guide you through this process.
- Registration Thresholds and Exceptions
Contractors must register for GST/HST once they are no longer considered a “small supplier”. This generally occurs when total worldwide taxable supplies exceed $30,000 over four consecutive quarters, or in a single quarter. Once that threshold is exceeded, registration becomes mandatory within 30 days.
Contractors whose revenues remain below the threshold are not required to register but may choose voluntary registration to claim input tax credits (ITCs) on business expenses.
- Charging GST/HST on Taxable Supplies
Contractors are required to apply GST/HST on the total value of their taxable supplies, which usually includes both labour and materials, if the service itself is taxable.
For instance, if a contractor purchases $100 in materials for a project and charges the client $1,000 for the project, GST/HST must be applied to the entire $1,100 amount, assuming the work performed is a taxable service (e.g. construction, renovation, or repair) amount.
- Claiming Input Tax Credits (ITCs)
Contractors can seek reimbursement for the GST/HST paid on goods and services purchased for their business operations through input tax credits.
These credits are invaluable tools to offset the GST/HST remittance that contractors owe to the government.
- GST/HST Filing Schedule
Contractors must file their GST/HST returns at least annually, and in certain cases quarterly or even monthly. These returns must be submitted electronically via the Canada Revenue Agency’s (CRA) My Business Account portal, streamlining the reporting process.
Understanding if Contractors Apply Tax to Labour Costs
A common question in the contracting world is whether contractors charge tax on labour. The answer depends on the nature of the service and where the work is performed.
- GST/HST Rules: Under the GST/HST framework, most contractor labour services – such as construction, installation, renovation and repair – are taxable supplies. Therefore, GST/HST must be charged once registration is required.
However, if the service falls under an exempt category (for example, certain health-care, education or financial services), no GST/HST applies. It’s essential to correctly determine whether your services are taxable, zero-rated or exempt under CRA Rules.
- Local Rules Matter: The way labour is taxed could also depend on where you’re operating. Different provinces might have their own rules, making it important to be aware of any regional distinctions.
- Transparent Communication: When you provide estimates or quotes to clients, it’s a good practice to clearly communicate whether labour charges include taxes like GST/HST. Transparency helps clients understand the complete financial picture.
Do Contractors Charge GST on Labour?
Whether you need to charge GST on labour depends on the type of service you provide and where your business operates.
Do I need to charge GST as a contractor?
Yes, most contractors must charge GST or HST once their total worldwide taxable supplies exceed $30,000 over four consecutive calendar quarters, or in a single quarter. This requirement applies to all independent contractors in Canada, including those providing construction, renovation, consulting, or trade services.
Do contractors charge tax on labour?
In most cases, labour is taxable if it is part of a taxable supply, such as construction, installation, or repair work. Contractors must include GST for contractors on the entire invoice amount, which covers both materials and labour.
Do you charge GST and PST on labour?
The answer depends on the province. In HST provinces (like Ontario or Nova Scotia), contractors charge a single HST rate. In non-HST provinces, such as Alberta or British Columbia, contractors charge 5% GST, and in some provinces, PST may also apply to the labour portion if local rules require it.
Exempt services
Certain services are exempt from GST/HST, such as specific healthcare, educational, or financial services. Contractors providing exempt supplies do not charge GST/HST on labour or materials.
Charging GST as a contractor
Once registered, contractors must show GST/HST details on every invoice, collect the tax from clients, and remit it to the CRA according to their filing schedule. Registered businesses can also claim input tax credits for the GST/HST paid on eligible expenses.
Acquiring Your GST/HST Identification
Small-scale or unique operating models don’t exempt your business from tax responsibilities. Similar to any enterprise, meticulous attention is necessary when it comes to tax obligations and payments. Nevertheless, the approach to cost calculation might exhibit some variations.
There are a couple of straightforward methods to secure your independent contractor GST Canada number, granting you access to the necessary identification for your business’s taxation matters. Here’s how you can go about it:
1. Online Registration via CRA’s My Business Account:
This option proves to be the most efficient and seamless approach to register for GST/HST. Follow these steps:
a. Visit the Canada Revenue Agency’s (CRA) My Business Account website.
b. Locate and select the “Register for a GST/HST number” button.
c. Abide by the instructions presented on the screen.
d. During the process, you will need to furnish:
- Your business name and address
- Your social insurance number (SIN)
- Your business type
- Your projected annual sales
Upon submitting your application, the CRA will assess it. Should any additional details be required, they will get in touch.
Once your application gains approval, you will be assigned a GST/HST number. You’ll then be able to conveniently manage your GST/HST account via your My Business Account portal.
2. Traditional Application Submission
Alternatively, you can opt for the more conventional route:
a. Acquire the GST/HST Application form (Form RC1) from the CRA’s official website.
b. Complete the form with the required information.
c. Mail or fax the fully filled application form to the CRA.
Upon successful registration, your business will be granted a GST/HST number. This number is crucial and should be prominently displayed on all your invoices and returns.
It’s paramount to note that if you anticipate your annual sales to exceed $30,000, registering for GST/HST is mandatory within 30 days of commencing your business operations. Overlooking this requirement may lead to penalties and interest.
How to Apply GST/HST on Services and Materials
For most independent contractors in Canada, GST/HST must be applied to both services and materials once total sales exceed $30,000 over four consecutive calendar quarters, or in a single quarter.
- Do I need to charge GST as a contractor?
Yes. If you are registered or required to register for GST/HST, you must charge tax on both labour and materials supplied to clients. This applies to all taxable services under GST for contractors, including construction, renovation, plumbing, and consulting.
- Do contractors charge tax on labour?
Yes, labour is generally taxable when it forms part of a taxable supply. The GST/HST rate is based on the province where the work is performed.
- Do you charge GST and PST on labour?
In HST provinces such as Ontario or Nova Scotia, contractors charge a single combined HST rate. In non-HST provinces like Alberta or British Columbia, contractors charge 5% GST, and PST may apply separately depending on local rules.
- Applying GST/HST to materials and services
Contractors must calculate GST/HST on the total invoice amount, which includes both materials and labour. For example, if materials cost $200 and labour is $800, GST/HST is applied to the full $1,000.
- Charging GST as a contractor
Registered contractors must issue invoices showing their business name, GST/HST number, subtotal, tax rate, and total amount. The collected tax is remitted to the CRA through regular filings.
- Professional guidance
Working with a GST/HST consultant can help ensure proper registration, invoicing, and remittance, especially if your projects span multiple provinces or include mixed taxable and exempt services.
Collecting and Applying GST/HST
After successfully registering for GST/HST and obtaining your GST number, you are now equipped to incorporate GST/HST charges for taxable goods and services rendered to your customers.
The GST/HST collected in this process is then directed to the Canada Revenue Agency through the submission of a GST/HST return, undertaken monthly, quarterly or annually.
This return is facilitated using your unique GST number, which the CRA identifies as your business number. Here’s a concise guide outlining the process:
1. Determine Applicable GST/HST Rate
Identify the relevant GST/HST rate linked to your supply. The rate is contingent on the province or territory of the transaction. It stands at 5% GST as the federal rate of sales tax and the Provincial Sales Tax rate may vary across most provinces.
Notably, Ontario observes a 13% HST, while New Brunswick, Newfoundland and Labrador, Nova Scotia, and Prince Edward Island have a 15% HST.
2. Add GST/HST to the Price
Integrate the GST/HST into the supply’s cost. For instance, if you’re vending selling a product for $100 in Ontario, including the 13% HST leads to a total price of $113.
3. Collect GST/HST from the Customer
Secure the GST/HST payment from your customer. Payment can be made via cash, cheque, or credit card.
4. Issue a Comprehensive Invoice
Furnish your customer with a detailed invoice encompassing the following specifics:
- Your business name and GST/HST number
- Customer’s name and address
- Supply description
- Supply price
- GST/HST amount
5. Remit GST/HST to the CRA
The frequency of remittance hinges on your total sales:
- If annual sales are under $1 million, remit quarterly.
- If annual sales exceed $1 million, remit monthly.
6. Seek Professional Advice:
If GST/HST procedures appear complex, consulting a tax professional is advisable.
GST/HST Filing Schedule for Contractors
| Annual Taxable Sales | Filing Frequency | Payment Due Date | Filing Method | Notes |
| $6,000,000 or more | Monthly | Within 1 month after the end of each reporting period | CRA My Business Account (online filing required) | Ideal for large contractors with high sales volume |
| More than $1,500,000 but less than $6,000,000 | Quarterly | Within 1 month after the end of each quarter | Online filing or paper return | Common for mid-sized contracting businesses |
| $1,500,000 or less | Annually | Within 3 months after the fiscal year-end | Online filing or paper return | Simplified reporting for small independent contractors |
| Voluntary registrants (under $30,000 sales) | Annually | Within 3 months after the fiscal year-end | Online or mail submission | Optional registration helps claim Input Tax Credits (ITCs) |
| All contractors (regardless of frequency) | — | Remit GST/HST collected by the deadline of each reporting period | CRA My Business Account | Late filing may result in interest and penalties |
Final Thoughts
The Canada Revenue Agency offers various resources, including publications and brochures tailored to diverse business types, to aid in understanding GST/HST.
Maintaining meticulous records is pivotal – these documents play a vital role in your business operations and must be furnished to the CRA as required. Remember that the tax filing deadline is June 15th each year varies based on your reporting period.
Should you have inquiries about charging GST as a contractor, don’t hesitate to seek the expertise of our accounting professionals. They stand ready to provide comprehensive guidance, ensuring you navigate the landscape with confidence.
FAQs
1. Do Consultants Have to Charge GST in Canada?
For independent contractors in Canada, the question of whether to charge GST is often raised. Whether consultants have to charge GST depends on various factors, including the nature of the services provided and the income threshold. Generally, if your annual sales exceed $30,000, you are required to register for GST/HST. However, specific services might be exempt from GST/HST. It’s essential to understand the GST rules for contractors and consult with tax professionals if needed to determine whether GST charging is applicable to your business.
2. Do I Include GST on My Invoices?
Indeed, including GST on your invoices is typically necessary if you are a registered GST/HST vendor. When you provide taxable goods or services, you are required to specify the GST/HST amount separately on your invoices. This practice ensures transparency and helps your clients understand the total cost they are being charged.
3. Is GST Applicable to Customers Outside of Canada?
The applicability of GST to customers outside of Canada depends on the type of supply and various factors. Generally, if you’re providing goods or services to customers located outside Canada, the supply might be considered an “export” and could be zero-rated for GST/HST purposes. However, it’s crucial to thoroughly understand the GST rules for contractors, especially when dealing with international transactions. Consulting with professionals experienced in cross-border transactions can provide clarity on whether GST is applicable in such scenarios.
In all these situations, understanding the implications of GST as a contractor, including charging, invoicing, and international aspects, can be complex. Seeking advice from tax experts and accountants who are well-versed in independent contractor GST rules in Canada is advisable to ensure accurate compliance and decision-making.
4. Can contractors claim input tax credits (ITCs)?
Yes. Registered contractors can claim input tax credits (ITCs) for the GST/HST paid on business-related purchases such as materials, tools, vehicle expenses, subcontractor fees, and office supplies. These credits reduce the amount of tax the contractor must remit to the CRA. To claim ITCs, contractors must keep valid receipts and invoices that clearly show the GST/HST paid.
5. Do I include GST/HST on invoices for Canadian clients?
Yes. Contractors must include GST or HST on all taxable supplies made to Canadian clients once registered. The invoice should clearly list the subtotal, applicable tax rate, GST/HST amount, and total due, along with the contractor’s business name and GST/HST number. The applicable rate depends on the province where the service is performed (for example, 5% GST or 13–15% HST).
6. How do contractors determine if their service is taxable?
Contractors must review the CRA’s list of taxable and exempt supplies. Most construction, renovation, repair, and consulting services are taxable. Services in areas such as healthcare, education, and financial activities are usually exempt. If a service is taxable, GST/HST must be charged and remitted; if exempt, no tax is applied or collected.