So I have a question about how the whole tax receipts work. Say I buy a table saw for $300 and the store taxes me $39. This tax of $39, is that what is deducted at the end of the year at tax time to reduce what I have to pay in taxes? Which is why I have to keep all receipts?
Also does this work if I don't have an HST number which I don't have, and when I invoice customers?
And say I buy 2 sheets of drywall and pay the tax on them from the store can I claim that tax or no?
Yes you can deduct the $39 at the end of the year and it is called your"input tax credit"
All taxes on materials,supplies,tools, fuel,etc can be claimed a an input tax credit.
You do need to register for a CRA HST number to claim the credit. You need to be charging your customers HST and that amount is submitted to CRA
If your sales for the year are below $30000 per year you don't need a HST number and your don't charge HST and you don't claim it as a credit
Get an accountant to help....they are worth the cost for the correct advice and their fee is a business cost deduction.
Ok so if I don't have an HST number I cant write off the tax on like tools, gas, business supplies that I buy at the end of the year? So how does it work if I make under 30000 then without HST number.
So any write offs for tools and such cant be deducted from what I pay at the end of the year without an HST number, even if I make under 30000.
You are confusing two things here. You can deduct the cost of the tools, before hst, from your annual income as a business expense.
So if the tool has a sticker price of $100, you deduct the $100 from your annual income.
If you are registered with an hst account you will then be charging you clients hst. At the end of the year if you charge $40,000 + hst = $45,200. You have collected $5,200 in hst. You can now go through all of your annual expense; gas, tools, phone bills, etc. Calculate how you paid in hst on these expenses and deduct it from what you collected. This is the total amount you must pay back to the government.
$40,000 + hst = $45,200
Hst collected = $5,200
$15,000 + hst = $16,950
Hst paid = $1,950
Subtract the hst paid from hst collected
$5,200 - $1,950 = $3,250
You must remit $3,250 back to the government. If your hst paid is higher than hst collected you would end up with a tax credit that can be applied to your income tax that you must pay.
Your income tax would be based on your revenue minus your expenses
$40,000 - $15,000 = $25,000
You would be paying income tax on $25,000
This does not constitute financial advise in any way and you should discuss with an accountant, however, I hope it helps clear things up a bit.
Globe Custom Construction
Ok awesome. Thanks Dave. So I can claim tools, gas and business related travel without an hst number. I am going to a tax seminar Thursday, it will give me more insight as well.
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