Modernizing the GST/HST small-supplier threshold: A compliance fix hiding in plain sight

Introduction

Albert Park, CPA, CA, CPA (IL), MTax, is a Senior Tax Manager at Zenbooks. His master’s thesis focused on GST/HST compliance and administrative design. Eric Saumure, CPA, CA, is Principal at Zenbooks.

Canada’s GST/HST small-supplier threshold has remained at $30,000 since the early 1990s. When introduced, the limit was meant to prevent the smallest ventures from being overwhelmed by a tax system designed for larger businesses. Over time, inflation has eroded the real value of that threshold, gradually pulling more micro-enterprises into mandatory registration. This dynamic was highlighted by the C.D. Howe Institute in its analysis of how inflation expands tax burdens when thresholds are left unindexed. 

This is not a debate about whether businesses should pay tax. It is a question of whether the original registration threshold still still protects the very businesses it was designed to exempt. 

Why the threshold matters in practice

GST/HST compliance is conceptually straightforward: registrants charge tax, claim input tax credits (ITCs), and remit the net amount. But for very small businesses, registration triggers ongoing obligations:

• Setting up systems to track taxable revenues
• Charging and holding tax in trust
• Issuing compliant invoices
• Filing returns and remitting taxes on time despite irregular cash flow
• Maintaining records sufficient to support ITCs 

For businesses with internal accounting support, these are routine processes. But for sole proprietors and micro-enterprises, they often fall directly on the owner or an external advisor. The compliance cost is measured not only in dollars, but in time and complexity. 

The impact differs between B2B and B2C businesses

The practical consequences of registration depend heavily on the client base. 

Businesses selling primarily to other businesses (B2B):
In many cases, GST/HST charged to business customers is recoverable through ITCs. The tax functions largely as a pass-through. Mandatory registration therefore adds administrative burden without materially changing the economic position of the buyer. The compliance work increases, while the net fiscal impact is limited. 

Businesses selling primarily to consumers (B2C):
For consumer-facing businesses, crossing the $30,000 threshold forces a difficult pricing decision. They must either increase prices to include tax or absorb the tax within their margins. For low-margin, price-sensitive operations, the threshold can feel less like a neutral administrative rule and more like a commercial inflection point. 

From an advisory perspective, two businesses with identical revenue can face very different consequences depending on whether their customers can claim ITCs. 

The threshold also influences formalization

Practitioners often encounter very small service businesses operating near or below the threshold that are hesitant to formalize further. Where bookkeeping systems are basic and payments are often made by cash or e-transfer, GST/HST registration can be perceived as entering a more complex compliance environment. 

This is not a claim that most small businesses are non-compliant. Rather, policy design at the margin influences behaviour. A threshold that has lost substantial real value may increase the number of businesses that ignore registration, delay professionalization of financial systems, or forcibly halt growth to remain below the line. 

International practice recognizes the trade-off

Consumption tax systems worldwide face a similar trade-off: most revenue is generated by medium and large firms, while the compliance cost per dollar of revenue is highest among the smallest registrants. For this reason, registration thresholds exist precisely to balance revenue collection with administrative efficiency. For example, the United Kingdom recently increased its VAT registration threshold to £90,000, among the highest in the OECD, explicitly recognizing the compliance burden faced by small businesses.

 The specific number varies by jurisdiction, but the principle is consistent. Very small suppliers are often treated as an administrative exception, not as an expanding base of low-yield registrants. 

A practical reform: raise and index the threshold

A measured reform would involve two steps:

1. Raise the small-supplier threshold to better reflect current economic realities.
2. Index the threshold to inflation going forward to prevent future erosion. 

This would not redesign the GST/HST system. It would restore the original intent of shielding the smallest enterprises from disproportionate compliance burden. 

A threshold in the range of $50,000 to $60,000 would more closely reflect the real-world value of the original limit today. The precise figure is a policy decision, but the principle of updating and indexing is straightforward. 

Importantly, such a change would not eliminate GST/HST obligations for growing businesses. Companies that scale beyond the micro-enterprise level would still register, collect, and remit tax. Voluntary registration would remain available for businesses seeking ITCs or responding to commercial expectations. 

Addressing the concern about “bunching”

One common objection is that raising the threshold could encourage businesses to cap revenue to avoid registration. Unfortunately, bunching behaviour already occurs at the current $30,000 threshold. Allowing inflation to erode the real value does not eliminate this behaviour; it simply shifts the burden onto even smaller operators. 

If policymakers are concerned about bunching, the appropriate response is targeted design and compliance strategies, not passive expansion of the registrant base through an outdated nominal limit. 

Implications for practitioners

For CPAs and advisors, a modernized threshold would alter client conversations in practical ways:

• Fewer small businesses would be required to register before they are administratively ready.
• Early engagements could focus on bookkeeping fundamentals, margin management, and cash flow rather than additional compliance mechanics.
• Voluntary registration decisions could be made strategically, rather than reactively. 

A recent Technology in Accounting study (2023) found that 82 per cent of Canadian micro-enterprises with fewer than five employees handle their bookkeeping themselves. In the earliest stages of growth, GST/HST compliance is not absorbed by an internal accounting department. It is managed directly by the owner. When those obligations land on evenings and weekends, the administrative burden becomes immediate and tangible to our entrepreneurs. 

A question of administrative efficiency

Canada regularly updates and indexes various tax parameters. But for some reason,the GST/HST small-supplier threshold is a notable exception. Leaving it unchanged for decades creates policy drift that expands obligations without explicit debate. 

Raising and indexing the threshold would not represent a tax giveaway. It would be an administrative modernization that aligns compliance obligations with capacity. For practitioners, it would mean fewer clients entering the GST/HST system before they are operationally prepared, and clearer, more transparent policy design. 

In short, the issue is not whether GST/HST should exist. It is whether the threshold governing its application still reflects sound tax administration in today’s economic environment. 

Albert Park, CPA, CA, CPA (IL), MTax, is a Senior Tax Manager at Zenbooks. His master’s thesis focused on GST/HST compliance and administrative design. Eric Saumure, CPA, CA, is Principal at Zenbooks. Author photos courtesy Albert Park and Eric Saumure. Title image: iStock photo ID 171266356 ("Holding file folders with Goods and Services Tax, Provincial Sales Tax and Harmonized sales tax documents").