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Canada Business Tax – Tax Information for Starting a Business

Obtaining a Retail Sales Tax (RST) Licence/Vendor’s Permit

The RST, also known as the Provincial Sales Tax (PST), is a tax based on the retail price of most goods. Businesses that sell taxable goods, provide a taxable service, or charge more than $4.00 admission to a place of amusement are responsible for collecting the tax and remitting it on a regular basis.

Merchandise and equipment used in a business, other than certain categories of production machinery and materials used in manufacturing, are taxable. Certain purchases, such as food products and children’s clothing, are exempt from the tax. There is no fee for this permit. Further information on vendor permits and tax-exempt purchases may be obtained from the Ontario Ministry of Revenue, Retail Sales Tax Office.

What does the RST apply to?

The RST rate in Ontario is 8% on most purchases of goods and on labour charges to install, repair and maintain taxable goods and equipment. Tax is also payable at the same rate on all prepared food products purchased from an eating establishment, where the total charge is more than $4.00.

Business Number (BN)

The BN is a reference numbering system that replaces the multiple numbers businesses required to deal with government. The BN can encompass one or more of the following accounts: Goods and Services Tax, Payroll Deductions, Importer/Exporter account number and Corporate Income Tax.

Goods and Services Tax (GST) and Harmonized Sales Tax (HST)

Effective January 1, 2008, the rate of the GST and the federal component of the HST are proposed to be reduced from 6% to 5%. The provincial component of the HST will remain at 8%. This means that the rate of HST is to be reduced from 14% to 13%.

Certain items, such as sales of basic groceries and prescription drugs, are also taxable, but at a rate of 0%. These are referred to as zero-rated goods and services. A limited number of goods and services are exempt from the GST/HST.

Who must obtain a BN for the GST/HST?

Most individuals or businesses engaged in a commercial activity with annual sales and revenues of GST/HST-taxable goods or services totalling more than $30,000 must register and charge the GST/HST.

If your total annual sales are less than or equal to $30,000, you are considered to be a small supplier and are not required to have a BN for the purpose of GST. If you do not obtain a BN, you do not charge GST/HST.

Reporting Self-employed Income – T1-General Income Tax Return

Non-incorporated self-employed individuals use the T1-General income tax return and the Guide to self-employed business income to determine their income tax obligations under the laws of Canada and of all provinces and territories, except Quebec. The Business and Professional Income tax guide supplements the T1-General guide.

T2 Corporation Income Tax Return and the T2 Short Return

All corporations-including non-profit organizations, tax-exempt corporations, and inactive corporations-have to file a T2 return for every taxation year, even if there is no tax payable. The only exception to this rule is a corporation that was a registered charity throughout the year. The T2 Corporation Income Tax Return has eight pages. Any corporation can use it. The T2 Short return is two pages plus a Schedule 1, a Schedule 8, and a Schedule 50. It is a simpler version of the T2 Corporation Income Tax Return, but, in order to use this declaration, the corporation must meet the requirements.