GST/HST Filing in Canada: Common Mistakes and How to Avoid Them
GST and HST are meant to be a pass-through tax: you charge the tax on taxable sales, claim input tax credits on eligible purchases, and remit the difference. In practice, many Canada Revenue Agency (CRA) reviews still start with sales tax. The rules are national, but the rate depends on the place of supply. In Ontario, most taxable sales are subject to HST rather than GST alone. Most filing problems come from a short list of habits. Tighten those, and your returns become easier to prepare and easier to defend.
Registering too late, or not at all
Canada has a small-supplier rule that allows some businesses to stay unregistered until their taxable supplies reach a set threshold over a rolling period. The mistake is assuming you are under that line without tracking it. Certain businesses must register earlier, and voluntary registration can make sense if you want to recover tax on expenses. Once registered, you must charge tax on taxable supplies and file for every period, even a nil return. Missing the registration point can mean you owe tax you never collected.
Charging the wrong rate
The rate is not always the rate of the province where your office sits. Place-of-supply rules look at the type of supply and, in many cases, the customer’s location. A Mississauga company that sells a service to a customer in another province may have to charge a different rate than the Ontario HST it is used to.
Exempt and zero-rated are not the same thing. Zero-rated sales are taxable at zero percent, and you can generally still claim input tax credits on related costs. Exempt sales are outside the system, and credits on related costs are usually restricted. Treating a taxable sale as exempt, or an exempt sale as taxable, is a frequent source of assessments.
Claiming credits you cannot support
Input tax credits (ITCs) are the part of the return most likely to be reduced in a review. To claim a credit, you generally need to be a registrant, the purchase must be for use in commercial activities, and you must have invoices with the information CRA expects, including the supplier’s name, the date, the tax amount, and, above certain amounts, the supplier’s GST/HST number. Watch for credits claimed from statements that do not show the tax separately, personal expenses run through the company, and meals or vehicles that are only partly eligible. Do not enter an ITC unless the invoice is on file and the tax amount has been checked against that invoice.
Filing errors and missed adjustments
CRA assigns a filing frequency based on your taxable supplies, and you must follow it unless a change has been granted. Skipping a period or filing late can attract penalties and interest. Even a nil return should be filed on time. If you cannot pay the full amount, it is usually better to file and deal with the balance than to stay silent.
Not every GST/HST amount comes from a supplier invoice. If you acquire certain imported services or intangible property for use in Canada, you may have to self-assess the tax. Other adjustments that are easy to skip include tax on employee benefits, change-in-use of property, and tax recovered when a bad debt is written off or later collected.
Reconcile every return to the books
A GST/HST return should be traceable to your books. Sales in the return should agree with taxable, zero-rated, and exempt sales in the income accounts, and ITCs should agree with the tax coded on purchases. Reconcile every period to the CRA balance. If your books say you are in a refund position and CRA says you owe money, find the difference before the next filing. This is also where a tax accountant in Canada can add value, because an unexplained difference is often the first sign of a missed period or a misposted payment. Apply tax codes at the time of entry, not at the deadline.
If your sales tax filings have become hard to reconcile, or you are unsure whether you are registered and coding sales correctly, Bestax Accountants can help with GST/HST returns and the bookkeeping behind them. The firm is at 1470 Hurontario St #100, Mississauga, ON L5G 3H4, and can be reached at info@bestax.ca or +1 416 991 0900.
