GST and QST: How Do They Really Work?

"As a consumer, paying taxes hurts the wallet. But when you become an entrepreneur, your perspective needs to shift completely.Rule number one to understand: GST and QST are neither income nor an expense for your business.In reality, you become an agent for the government. Your role is simple: collect money on behalf of the State and remit it. In exchange, the government allows you not to pay taxes on your own business expenses. It is a balancing act that we will break down together."

1. The Current Rates (The Basic Math)

In Quebec, we juggle two taxes:

• GST (Goods and Services Tax): This is the federal portion (Canada). Current rate: 5%.

• QST (Quebec Sales Tax): This is the provincial portion. Current rate: 9.975%.

In total: You must add 14.975% to your sales invoices (often rounded to 15% in our heads, but accounting software uses the precise rate).

2. The Magic Mechanism: Collection vs. Expenses

This is where the magic happens. The system works based on the difference between the two.

A. What You Collect (Sales)

When you bill a client $100 + Tax ($14.98), you receive $114.98.

• The $100 is yours (your revenue).

• The $14.98 is not yours. You must set it aside for the government.

B. What You Pay (Expenses/Inputs)

To run your business, you buy a computer, pay rent, advertising, etc. You pay taxes on these purchases.

• The government considers that businesses shouldn't have to bear the cost of these taxes.

• Therefore, you will claim back the taxes you paid. These are called ITCs (Input Tax Credits - Federal) and ITRs (Input Tax Refunds - Quebec).

3. The Final Equation: The Tax Return

At the end of your reporting period (monthly, quarterly, or annually), you balance the books:

Taxes Collected (Sales) - Taxes Paid (Expenses) = Amount to Pay (or Receive)

• Scenario 1 (Most Common): You collected more than you spent. You write a cheque for the difference to the government.

• Scenario 2 (Start-ups or Heavy Investment): You spent more than you sold. The government sends you a cheque (a refund).

4. The Deadly Mistake to Avoid

The classic trap for new entrepreneurs is looking at their bank account, seeing a high balance, and spending it all.

Never forget: A portion of that money (roughly 15% of your sales) belongs to Revenu Québec/Canada.

Pro Tip: Open a separate savings account. Every time a client pays you, immediately transfer the tax amount (15%) to this account. When tax season arrives, the money is there, and you won’t be stressed.

Conclusion

"Managing GST/QST doesn't have to be a nightmare. It’s a simple exercise of 'money in' versus 'money out.' Once you are registered, make sure to keep all your expense receipts: every lost receipt is money (ITCs/ITRs) that you are donating for free to the government!"

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