Who has to file and how often
Once you are registered for GST/HST, you must file a return for every reporting period, even if you had no sales and owe nothing. You are required to register when your worldwide taxable supplies exceed $30,000 in a single calendar quarter or over four consecutive calendar quarters (the small supplier threshold); many businesses register voluntarily earlier so they can claim input tax credits.
Your reporting period depends on your annual taxable revenue. Businesses with $1.5 million or less are assigned annual filing by default but can elect quarterly or monthly. Those between $1.5 million and $6 million file quarterly, and above $6 million file monthly. Filing more often than required can make sense if you usually get refunds, such as exporters or businesses that make large equipment purchases.
Deadlines
Monthly and quarterly returns, and the payment owing, are due one month after the end of the reporting period. Annual filers generally have three months after their fiscal year-end. Sole proprietors with business income and a December 31 year-end have until June 15 to file, but any balance owing is still due April 30.
Annual filers may also have to pay quarterly instalments if their net tax for the previous year was $3,000 or more. Missing instalments triggers interest even if the annual return itself is on time.
The lines that matter
The return is short. The work is in the numbers behind it. Line 101 is your total sales and other revenue for the period (excluding the GST/HST itself). Line 103 is the GST/HST you collected or that became collectible, which means tax on invoices issued in the period whether or not the customer has paid. Line 106 is your input tax credits: the GST/HST you paid or owe on business purchases and expenses. Line 109 is net tax, the difference.
If line 109 is positive, you owe that amount. If negative, you are due a refund. Instalments already paid and certain rebates are subtracted further down before you arrive at the final balance.
- Line 101: sales and other revenue
- Line 103: GST/HST collected or collectible
- Line 104: adjustments (for example, bad debts recovered)
- Line 106: input tax credits
- Line 107: ITC adjustments
- Line 109: net tax owing or refundable
Claiming input tax credits correctly
Input tax credits let you recover the GST/HST you paid on purchases used in your commercial activities, such as inventory, rent, equipment, software and professional fees. You can only claim them for purchases used to make taxable (including zero-rated) supplies; purchases related to exempt supplies do not qualify. Some expenses have restrictions, such as meals and entertainment, where generally only 50% of the tax is claimable.
Keep supporting documents. The information required depends on the purchase amount: for purchases under $100 you need the supplier’s name, date and total; from $100 to $499.99 you also need the supplier’s GST/HST number and the tax amount or rate; at $500 and over you need your business name, the terms of payment and a description of the goods or services. An invoice without the supplier’s GST/HST number is the most common reason a credit gets denied in an audit.
You generally have four years to claim an ITC you missed, so a forgotten receipt can still be claimed on a later return.
Prepare the return from reconciled books
Prepare the return from your accounting system after you have reconciled the bank and credit card accounts for the period. Run a sales tax report showing tax collected and tax paid by rate and jurisdiction, and check that the GST/HST payable account in your balance sheet matches the report. If it does not, find the difference before filing; common culprits are transactions coded to the wrong tax rate, manual journal entries and purchases entered without tax.
If you sell in more than one province, make sure each sale was charged the right rate. Under the place-of-supply rules, goods shipped to a customer are generally taxed at the rate of the province they are delivered to. SeroBooks handles GST, HST, PST and QST for every province and includes a Sales Tax Centre that builds the return figures from your ledger, so the report and the balance sheet come from the same transactions.
File and pay
Almost all registrants must file electronically. The main options are GST/HST NETFILE on the CRA website using the access code from your return package, My Business Account, or filing through a representative such as your accountant. Payment can be made through online banking (add the CRA as a payee using your business number), My Payment, pre-authorized debit or at your bank.
In Québec, Revenu Québec administers both GST and QST for most businesses, so you file a combined return with Revenu Québec rather than with the CRA.
A worked example
Consider an Ontario retailer filing quarterly. During the quarter it had $180,000 of taxable sales (before tax) and charged 13% HST, or $23,400. It bought $95,000 of inventory and $22,000 of other taxable expenses (rent, utilities, software, professional fees), paying $15,210 of HST on those purchases. It also bought a $6,000 display unit and paid $780 of HST.
Line 101 is $180,000. Line 103 is $23,400. Input tax credits on line 106 are $15,210 plus $780, or $15,990. Net tax on line 109 is $23,400 minus $15,990, which is $7,410 owing, due one month after the quarter ends.
Before filing, the retailer checks that its HST payable account shows $23,400 collected and its HST receivable (ITC) account shows $15,990 paid for the quarter, and that both agree with the sales tax report. If it sold some goods shipped to Alberta customers at 5% GST, those sales would be included in line 101 and the tax in line 103 at the lower rate, and the report should show them separately so the rate can be checked.
The quick method and other simplifications
Eligible small businesses with annual taxable revenue of $400,000 or less can elect the quick method. Instead of tracking ITCs on most expenses, you remit a reduced percentage of your tax-included sales and still claim ITCs on capital purchases. Whether it saves you money depends on your margins and expense mix, so run the numbers for a past year before electing.
Whichever method you use, set aside the tax you collect in a separate account. GST/HST you charge customers is not your money, and businesses that spend it often end up with a large bill they cannot pay at filing time.