Many new business owners ask themselves this question. While you are not required to apply for a GST number if your revenue (not profit) is less than $30,000 per year, that does not mean you shouldn’t. In fact, I recommend that you do – and here’s why:
Let’s say you make a sale of $100.00. You collect GST of $5 on it. It costs you $50 in materials to make that sale – and it is likely that your supplier does charge GST, so you pay $52.50. GST filing time comes around and you subtract the $2.50 you paid from the $5.00 you collected and give the government the remaining $2.50. This leaves you with $50 profit in your pocket before taxes. If you pay 30% tax on that, you are left with $35 cash in your pocket after taxes.
Now, we look at the same transaction if you have no GST number. You still make a $100 sale but you collect no GST, and it still costs you $50 in materials to make that sale. Your supplier still charges you GST on that material, so you pay $52.50, and you simply record the total as an expense. There is no GST to file and at the end of the transaction you are left with $47.50 pre-tax profit. After paying your same 30% tax on these funds, you are left with a remaining after tax balance of $33.25.
As a new small business owner, you want to keep as much money in your pocket as humanly possible! Why give it to the government if you don’t have to?