When your small business pays contractors or subcontractors, you may need to withhold GST/HST from those payments under certain conditions. If the contractor is not registered for GST/HST, or if you're in a situation where reverse charge rules apply, your business could be responsible for remitting the tax on their behalf. Understanding these obligations helps you stay compliant with the Canada Revenue Agency (CRA) and avoid unexpected penalties. Not every contractor payment triggers a withholding requirement. The main scenarios where withholding applies include: Unregistered contractors: If you pay someone who is not registered for GST/HST, and they would normally be required to charge tax on their services, you may owe GST/HST on that payment Imported services: When you purchase services from a non-resident (outside Canada), you may owe GST/HST under the reverse charge mechanism Certain construction services: Construction, renovation, and demolition services have specific withholding rules in some provinces The exact rules depend on whether you're in a GST-only province (AB, BC, SK, MB, AB, NT, NU, YT) or an HST province (ON, NS, NB, NL, PE). The reverse charge is a GST/HST rule that applies when you purchase taxable supplies from an unregistered non-resident supplier.
No. If the contractor has a valid GST/HST registration number and provides you with a proper invoice showing GST/HST, you do not need to withhold. They are responsible for remitting the tax they charge you.
The reverse charge is a rule where you (not the supplier) self-assess and remit GST/HST when you buy taxable supplies from an unregistered non-resident. It commonly applies to digital services, consulting, and intellectual property purchased from outside Canada.
Yes, generally you can claim an input tax credit for GST/HST you self-assess, provided your business is registered and the expense is otherwise deductible. This may result in a net refund if your credits exceed your collections.
You can ask the contractor for their GST/HST registration number, request an invoice that shows their registration, or use the CRA's Business Number lookup tool online to confirm their status.
The CRA can assess you for the missing GST/HST amount, plus interest and penalties. This can significantly increase your tax bill, so it's important to get it right the first time.