Bob is a hobbyist photographer who has shot many weddings and engagement photos for friends and family over the years at no charge. He has been praised for his talents, but never seriously considered turning his passion into a business since he feels that wedding photography is extremely competitive.
After recently buying a new home, Bob got an idea to differentiate himself from other amateur photographers. Instead of photographing weddings, Bob will sell his services to real estate agents and provide photos, virtual tours, HD video walk-throughs, and other promotional materials to the agents for use in real estate listings. After doing some research, Bob is convinced there is a market for these services and he plans to officially launch his business on January 1, 20X1.
Most of Bob’s customers will be real estate agents who are GST registrants and entitled to recover GST on expenses via input tax credits (ITCs). However, Bob also anticipates that about 20% of his revenue will come from homeowners who are interested in selling their homes privately without the use of a real estate agent. These customers will be non-registrants and extremely price sensitive. To stay competitive, Bob will need to make any required GST inclusive in the pricing to these customers. For example, if Bob’s advertised price is $100 to a private homeowner, Bob will collect $100 plus zero GST if he is not a GST registrant or $95.24 plus $4.76 GST if he is a GST registrant.
Bob expects his revenue for the first year to be:
January–March, 20X1 ……………………….. $ 500
April–June, 20X1 ………………………………. 3,000
July–September, 20X1 ……………………… 6,000
October–December, 20X1 ……………… 12,000
Each subsequent quarter ………………. 15,000
To start his business, Bob will purchase new camera and video equipment for $13,000, as well as a new computer for $2,000 and a licence for photo-editing software for $400. He will need insurance coverage to operate and the annual premium is expected to be $2,800. Other operating expenses including office supplies will be approximately $1,500 for the year. These expenses are all exclusive of any applicable GST.
1. When is Bob required to register for GST? Is there any benefit to registering earlier?
2. Assuming Bob registers for GST effective January 1, 20X1, should he use the general method, quick method, or simplified ITC method to account for the GST? Calculate his net tax owing under each method and provide an overall recommendation. Be sure to highlight any additional filing requirements that result from your recommendation.
Assume the remittance rate is 3.6%.