Who can register for GST and QST?

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Registration (or lack of registration) for GST and QST can have significant tax implications for a company. These include the right to claim input tax credits (ITCs/ITRs) for business expenses, or certain tax elections that allow certain supplies to become non-taxable (e.g., the sale of all or substantially all of the assets of a business).

What the law provides

First, under section 240 of the Excise Tax Act (and its provincial equivalent), registration is mandatory when a person (including a company) makes a taxable supply in Canada in the course of its commercial activities. The exception is where the person is a small supplier (less than $30,000 in taxable supplies), where the person's only commercial activity is supplies of real property outside the course of a business, and where the person is not resident in Canada and does not carry on business in Canada.

However, the law provides for certain situations in which one may register for the GST and QST, but is not required to do so. Section 240(3) of the ETA provides that a person may register if he or she is engaged in a commercial activity in Canada, regardless of the amount of taxable supplies made.

Under the Act, a person is engaged in a commercial activity when he or she carries on a business, engages in an adventure or concern in the nature of trade, unless there is no reasonable expectation of profit, and makes a supply of real property (including a lease of real property). In all three of these situations, the Act specifically excludes exempt supplies. Thus, if a person carries on a business that exclusively makes exempt supplies within the meaning of the Act, it cannot register for the GST and QST.

In general, registration is possible even before making taxable supplies and starting the business. However, there must be a clear intention to engage in commercial activities in Canada. Incorporating at corporation is a factor in identifying an intention to engage in commercial activities (GST/QST Memorandum 2.3, May 1999).

Exempt supplies

There are many exempt supplies, with several nuances and exceptions. Examples of exempt supplies include residential leases of one month or more, financial services, and health services. Exempt supplies should not be confused with zero-rated supplies. Zero-rated supplies are supplies made in the course of a commercial activity, but are taxed at 0% (e.g. the sale of food in a grocery shop). In these cases, ITCs/ITRs may be claimed for expenses incurred in making zero-rated supplies, unlike exempt supplies.

Thus, following theincorporation of the business, it is necessary to make the appropriate verifications in order to determine whether the sales made are taxable supplies within the meaning of the law, and whether it is necessary to register for taxes.

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