When Does a Business Lose Small Supplier & GST Exemption?

Overview: GST/HST Obligations for Canadian Businesses & The Small-Supplier Exemption

Section 165 of Canada’s Excise Tax Act imposes GST/HST on “every recipient of a taxable supply made in Canada.” A “taxable supply” essentially refers to any commercial activity, and it captures most business transactions—e.g., sale of goods or services; barter transactions; licensing or leasing arrangements; etc.

By allowing registered businesses to claim offsetting tax credits, the GST/HST system effectively disregards the commercial suppliers and taxes the ultimate consumer. A registered supplier may recoup the GST/HST that it paid to its own business vendors by claiming those amounts as input tax credits (ITCs). Unlike the registered suppliers participating in the supply chain, the ultimate consumer cannot claim input tax credits and hence cannot recover the GST/HST paid to retailers or other suppliers.

Although the consumer ultimately pays the GST/HST, the registered commercial suppliers still bear the burden of charging GST/HST, collecting GST/HST, and paying the collected GST/HST to the Canada Revenue Agency. In particular, a Canadian business earning $30,000 or more in worldwide gross revenues in any year must register for a GST/HST number and begin charging GST/HST on its goods and services.

On the other hand, a Canadian business earning less than $30,000 in annual gross revenue qualifies as a “small supplier.” And under paragraph 240(1)(a) of Canada’s Excise Tax Act, a small supplier need not register for—and thus need not collect—GST/HST. (This small-supplier exemption doesn’t apply to certain businesses. For example, regardless of how little they earn in gross annual revenue, taxi businesses and commercial ride-share drivers must register for GST/HST upon commencing operations and must charge GST/HST for every ride.)

Many Canadian small-business owners don’t fully understand the small-supplier exemption. And as a result, some Canadian businesses have neglected to register for GST/HST even though they no longer qualify as small suppliers. If audited by the CRA, these businesses face not only GST/HST liability but also liability for penalties, interest, and possible criminal prosecution for tax evasion.

This article discusses the Excise Tax Act’s small-supplier exemption, clarifying exactly when a business ceases to qualify as a “small supplier.” It also discusses the GST/HST implications for businesses that cease to qualify as small suppliers. It concludes by offering pro tax tips from our expert Canadian GST/HST lawyers.

The Small-Supplier GST/HST Exemption & Loss of Small-Supplier Status

As mentioned above, a Canadian business earning less than $30,000 in annual gross revenue constitutes a “small supplier.” Under paragraph 240(1)(a) of Canada’s Excise Tax Act, a small supplier need not register for—and thus need not collect—GST/HST.

(This small-supplier exemption doesn’t apply to every business. For example: subsection 240(1.1) requires every taxi business and every commercial ride-share driver to register for GST/HST—regardless of its gross annual revenue.)

Section 148 of Canada’s Excise Tax Act contains rules setting out exactly when a business ceases to qualify as a “small supplier.” The section contains two separate rules depending on whether the business exceeded the $30,000 small-supplier threshold entirely within a single calendar quarter or across multiple quarters.

Subsection 148(1) deals with situations in which a business exceeds the $30,000 small-supplier threshold across multiple calendar quarters. Under subsection 148(1), a person remains a small supplier “throughout a particular calendar quarter and the first month immediately following the particular calendar quarter” if the total value of the worldwide taxable supplies made by that person and by someone associated with that person “in the four calendar quarters immediately preceding the particular calendar quarter” does not exceed $30,000.

Put another way, if a business’s taxable supplies exceeded $30,000 during the last four calendar quarters, the business ceases to be a small supplier as of the first month of the fifth quarter.

In other words, if a business makes over $30,000 in taxable supplies within a single calendar quarter, that business immediately ceases to be a small supplier. That business must register for GST/HST as of the date that the business made the supply that crossed the $30,000 threshold, and that business must begin charging GST/HST starting with the supply that crossed the $30,000 threshold.

Suppose, for instance, that, in 2025, you started a business in Canada. You generated $60,000 in gross revenue proportionately throughout the year—i.e., $15,000 per quarter in 2025. Your gross revenue during each calendar quarter in 2025 breaks down as follows:

Quarter 1 (January 1 to March 31): $15,000
Quarter 2 (April 1 to June 30): $15,000
Quarter 3 (July 1 to September 30): $15,000
Quarter 4 (October 1 to December 31): $15,000

Subsection 148(2) of Canada’s Excise Tax Act doesn’t apply because you didn’t exceed the $30,000 small-supplier threshold in any single calendar quarter.

So, to determine whether you ceased to qualify as a small supplier, you need to turn to subsection 148(1). The test in subsection 148(1) applies on a quarter-by-quarter basis. Specifically, the provision requires you to determine your small-supplier status for a “particular calendar quarter” by calculating your total taxable supplies during “the four calendar quarters immediately preceding the particular calendar quarter.”

You remained a small supplier throughout Q1 2025 because your total taxable supplies “in the four calendar quarters immediately preceding” Q1 did not exceed $30,000. The “four calendar quarters immediately preceding” Q1 2025 consisted of Q1-Q4 2024. You earned no revenue during those quarters because you had yet to start the business.

For the same reason, you also remained a small supplier throughout Q2 2025. The “four calendar quarters immediately preceding” Q2 2025 consisted of Q2 2024, Q3 2024, Q4 2024, and Q5 2025. Your total taxable supplies in these four calendar quarters amounted to $15,000, which you made during Q1 2025. You still haven’t exceeded the $30,000 small-supplier threshold.

Although your gross revenue exceeded $30,000 during Q3 2025, you still remained a small supplier throughout Q3 2025. The “four calendar quarters immediately preceding” Q3 2025 consisted of Q3 2024, Q4 2024, Q1 2025, and Q2 2025. Your total taxable supplies in these four calendar quarters amounted to exactly $30,000, which you made during Q1 2025 and Q2 2025. By the end of Q2, you had earned exactly $30,000 in gross revenue, but you didn’t “exceed” the $30,000 threshold. So, you remained a small supplier in Q3 2025.

The situation changes for Q4 2025. The “four calendar quarters immediately preceding” Q4 2025 consisted of Q4 2024, Q1 2025, Q2 2025 and Q3 2025. Your total taxable supplies in these four calendar quarters amounted to $45,000, which you made during Q1 2025, Q2 2025, and Q3 2025. Hence, Q4 2025 failed the test in subsection 148(1) of Canada’s Excise Tax Act.

The last calendar quarter that passed the small-supplier test was Q3 2025. Thus, under subsection 148(1), you remained a small supplier “throughout [Q3 2025]” and “throughout the first month immediately following [Q3 2025].” In other words, you ceased to be a small supplier on the first day of the second month of Q4 2025—i.e., on November 1, 2025. Canada’s Excise Tax Act therefore requires you to register for GST/HST as of November 1, 2025, and you must charge GST/HST on all your taxable supplies from that date onward.

To compare, suppose that, in 2025, you started a Canadian business, and you generated $60,000 in gross revenue all within Q1 2025. In particular, on February 5, 2025, you made the sale that caused your total revenue to exceed the $30,000 small-supplier threshold.

Under subsection 148(2) of Canada’s Excise Tax Act, you cease to be a small supplier on February 5, 2025. You must register for GST/HST as of February 5, 2025, and you must charge GST/HST on all your taxable supplies from that date onward—including the specific taxable supply that exceeded the $30,000 threshold.

GST/HST Consequences for Canadian Businesses that Cease to Qualify as Small Suppliers

If obligated to register for GST/HST, the business must (1) charge and collect GST/HST on all goods sold or services rendered and (2) file GST/HST returns for each reporting period—even if the business earned no revenue during that period or had no net GST/HST payable for that period.

The length of a business’s GST/HST reporting period determines when the business must file GST/HST returns and pay the net GST/HST. A GST/HST reporting period can be annual, quarterly, or monthly.

If the reporting period is monthly, then that reporting period’s GST/HST return and net GST/HST payable are both due by the end of the following month.
If the reporting period is quarterly, then that reporting period’s GST/HST return and net GST/HST payable are both due within one month from the end of the quarter.
If the reporting period is annual and the business is incorporated, then that reporting period’s GST/HST return and net GST/HST payable are both due within three months of the fiscal year-end.
If the reporting period is annual and the business operates as a sole proprietorship, then that year’s GST/HST return is due by June 15^th of the following year. But that year’s net GST/HST payable is due by April 30^th of the following year. (These dates are the same as the income-tax filing deadlines and the income-tax payment deadlines for sole proprietors.)

The length of a reporting period depends on the business’s annual revenue during the last fiscal year. A business that earned $1.5 million or less may opt for an annual, quarterly, or monthly GST/HST reporting period. A business may opt for a quarterly or monthly GST/HST reporting period if it earned over $1.5 million but not more than $6 million. And a business must use a monthly GST/HST reporting period if it earned over $6 million during the last fiscal year.

Input Tax Credits

Although mandatory GST/HST registration obligates the business to charge, collect, and remit GST/HST, it also allows the business to claim input tax credits. In particular, if the business paid GST/HST to one or more of its own vendors, the business may claim those amounts as an input tax credit (ITC), thereby reducing that business’s net GST/HST payable to the Canada Revenue Agency.

For this very reason, an otherwise exempt small supplier may still opt to voluntarily register for GST/HST. Although voluntary GST/HST registration obligates a small supplier to charge, collect, and remit GST/HST, it also permits the small supplier to claim input tax credits. The ability to claim input tax credits is indeed the primary benefit of voluntarily registering for GST/HST. For more information about the benefits and consequences of voluntarily registering for GST/HST, read our article “Voluntary GST/HST Registration for Small Suppliers.”

Qualifying GST/HST registrants have the option of calculating their ITCs by using a simplified method, which allows the registrant to determine its ITCs by multiplying its qualifying expenses by a specified rate. This allows the registrant to avoid the burden of separately tracking GST/HST in its own records.

Under the regular method, the registrant must record the GST/HST paid or payable on each business expense. Under the simplified method, however, the registrant adds up the total amount of expenses that qualify for ITCs—i.e., adds up the total amount of all business expenses for which the registrant paid GST/HST to another registrant.

The registrant then calculates the available ITCs by multiplying its expenses by a proportion based on the rate of tax paid on the expense—for example, multiplying by 5/105 for purchases on which it paid 5% GST, by 12/112 for purchases on which it paid 12% HST, by 13/113 for purchases on which it paid 13% HST, etc. The total amount represents the registrant’s input tax credits for the particular reporting period.

A registrant cannot use the simplified method unless it meets all of the following conditions:

During the registrant’s last fiscal year, the registrant’s annual worldwide revenue from taxable property and services (including those of its associates) did not exceed $1 million. (This limit doesn’t include goodwill, zero-rated financial services, or sales of capital real property.)
For all preceding quarters of the current fiscal year, the registrant’s total revenue from taxable supplies (including those of its associates) does not exceed $1 million. (This limit doesn’t include goodwill, zero-rated financial services, or sales of capital real property.)
During the registrant’s last fiscal year, the registrant’s taxable purchases in Canada did not exceed $4 million.

This is a very general description of the simplified method of calculating input tax credits. For more information on the simplified method, take a look at our article “Simplified Method for Claiming Input Tax Credits (ITCs).” If you have questions about the simplified method of calculating ITCs, please schedule a consultation with one of our knowledgeable Canadian GST/HST lawyers.

Regardless of whether a business uses the regular method or the simplified method, the business must meet certain criteria to qualify for the ITC itself. For instance, the business must have been a GST/HST registrant during the reporting period in which the GST/HST was paid or became payable. In addition, “before filing” a GST/HST return claiming the ITC, the business must obtain documentary evidence substantiating the ITC. A business must obtain, among other things, the following information in support of the ITC claimed:

The name of the supplier who charged the GST/HST underlying the ITC;
The total amount paid or payable to that supplier;
The amount of GST/HST paid or payable to that supplier;
The date on which the GST/HST was paid or became payable; and
The supplier’s GST/HST registration number.

The Canada Revenue Agency’s GST/HST auditors routinely deny ITCs because of insufficient supporting documents.

Pro Tax Tips & Expert Canadian GST/HST Lawyer Tax Guidance

When calculating whether your taxable supplies have exceeded the $30,000 threshold, you must include any sales made by any “associated” person. An “associated” person generally refers to taxpayers and entities that are part of the same controlling group. If an individual controls a corporation, for instance, their combined sales are tested against the $30,000 threshold. If their combined sales exceed the small-supplier threshold, then neither the individual nor the corporation qualifies as a small supplier.

Finally, Canada’s Excise Tax Act excludes certain amounts from the small-supplier-threshold calculation. The business need not include the following amounts for the purposes of calculating whether it has exceeded the $30,000 small-supplier threshold: (1) exempt supplies; (2) a sale of goodwill of a business that meets various requirements; (3) zero-rated financial services; and (4) sales of capital property. To determine whether any of these exclusions apply in your case, speak to one of our Canadian GST/HST lawyers today.

Because many Canadian small-business owners don’t fully understand the small-supplier exemption, some Canadian businesses have neglected to register for GST/HST even though they no longer qualify as small suppliers. By failing to comply with GST/HST obligations, Canadian business owners risk exposure to monetary penalties and criminal liability for tax evasion.

In many cases, the best remedy is the Canada Revenue Agency’s Voluntary Disclosures Program, which provides qualifying taxpayers with relief from tax penalties and tax prosecution. Our experienced Canadian tax lawyers have helped countless taxpayers avoid sanctions with the Voluntary Disclosures Program. To find out whether you qualify—or to discuss your options if you don’t—consult one of our certified specialists in taxation, Canadian tax lawyers today.

Frequently Asked Questions

What is a “small supplier” for GST/HST purposes? And why is that designation significant?

A Canadian business earning less than $30,000 in annual gross revenue constitutes a “small supplier.” Under paragraph 240(1)(a) of Canada’s Excise Tax Act, a small supplier need not register for—and thus need not collect—GST/HST. (This small-supplier exemption doesn’t apply to every business. For example: subsection 240(1.1) requires every taxi business and every commercial ride-share driver to register for GST/HST—regardless of its gross annual revenue.)

When exactly does a business cease to qualify as a “small supplier”?

Under subsection 148(1), a person remains a small supplier “throughout a particular calendar quarter and the first month immediately following the particular calendar quarter” if the total value of the worldwide taxable supplies made by that person and by someone associated with that person “in the four calendar quarters immediately preceding the particular calendar quarter” does not exceed $30,000. Put another way, if a business’s taxable supplies exceeded $30,000 during the last four calendar quarters, the business ceases to be a small supplier as of the first month of the fifth quarter.

Subsection 148(2), by contrast, applies when a business exceeds the $30,000 small-supplier threshold entirely within a single calendar quarter. Under subsection 148(2), if “at any time in a calendar quarter” the total value of the worldwide taxable supplies made by that person and by someone associated with that person exceeds $30,000, that person immediately ceases to qualify as a small supplier. In other words, if a business makes over $30,000 in taxable supplies within a single calendar quarter, that business immediately ceases to be a small supplier. That business must register for GST/HST as of the date that the business made the supply that crossed the $30,000 threshold, and that business must begin charging GST/HST starting with the supply that crossed the $30,000 threshold.

Can you provide an example involving the application of subsection 148(1)?

Quarter 1 (January 1 to March 31): $15,000
Quarter 2 (April 1 to June 30): $15,000
Quarter 3 (July 1 to September 30): $15,000
Quarter 4 (October 1 to December 31): $15,000

Subsection 148(2) of Canada’s Excise Tax Act doesn’t apply because you didn’t exceed the $30,000 small-supplier threshold in any single calendar quarter.

Can you provide an example involving the application of subsection 148(2)?

Suppose that, in 2025, you started a Canadian business, and you generated $60,000 in gross revenue all within Q1 2025. In particular, on February 5, 2025, you made the sale that caused your total revenue to exceed the $30,000 small-supplier threshold. Under subsection 148(2) of Canada’s Excise Tax Act, you cease to be a small supplier on February 5, 2025. You must register for GST/HST as of February 5, 2025, and you must charge GST/HST on all your taxable supplies from that date onward—including the specific taxable supply that exceeded the $30,000 threshold.

What are the GST/HST consequences of ceasing to qualify as a small supplier?

Once a business ceases to qualify as a “small supplier,” it must register for GST/HST. The business must also (1) charge and collect GST/HST on all goods sold or services rendered and (2) file GST/HST returns for each reporting period—even if the business earned no revenue during that period or had no net GST/HST payable for that period.

DISCLAIMER: This article provides broad information. It is only accurate as of the posting date. It has not been updated and may be out-of-date. It does not give legal advice and should not be relied on as tax advice. Every tax scenario is unique to its circumstances and will differ from the instances described in the article. If you have specific legal questions, you should seek the advice of a Canadian tax lawyer.