Many new business owners and independent contractors aren’t familiar with their responsibilities surrounding Harmonized Sales Tax (HST) filings, and it’s perfectly understandable. With all of the time, commitments, and sheer excitement of setting up and launching a business, collecting and remitting tax to Canada Revenue Agency (CRA) is something most business owners would rather not even think about.
But you can’t ignore the reality. As a business owner in Ontario, understanding your rights and responsibilities surrounding HST filings is not an option. Ignoring the issue won’t make it – or the taxman – go away, and could put your business into financial trouble.
Outstanding HST debt is not uncommon in my line of business, so I’ve answered some of the most frequently asked questions about HST filings that should provide some clarity.
What is and how much is HST?
HST is a consumption tax in Canada. In Ontario, it is the total sum of the 5% federal goods and services tax (GST) and the 8% provincial sales tax (PST) to create a single value added sales tax.
How do I register for HST?
You can easily register for an HST account right on the CRA website. You’ll be given an HST business registration number for use on your invoices.
Does it cost money to register for an HST number?
No, HST registration is free.
Do all companies have to collect HST?
Most corporations, partnerships, sole proprietors, and independent contractors in Ontario have a responsibility to act as HST agents for CRA when doing business in Canada.
However, there are a few businesses that are exempt from registering to collect and remit HST. You can view them here.
How much money can you earn in a year before you have to collect HST?
If your business earns $30,000 in taxable sales, you have an obligation to collect and remit HST to CRA.
This begs the obvious question: how do I know how much money I’ll make before I make it? This is especially true for first time business owners who are entering uncharted waters. If you don’t think you’ll make $30,000 in taxable sales, you don’t have to collect HST but can still opt to do so.
If I collect HST but made less than $30,000, do I still have to remit what I collected, or can I carry it forward?
Yes, you are still required to remit what you collected in HST regardless of your taxable sales amount that year. You are not allowed to carry HST collections forward.
What if I didn’t register to collect HST and make over $30,000 in sales?
In this scenario, you’ll need to charge HST on the sale that put you over that amount, and for every sale after that moving forward. You also need to register to collect HST within 29 days of that sale. You’ll then only be responsible to remit what you’ve collected for that year.
Be warned – if you don’t register at the $30,000 mark and don’t collect any HST that year, you may be required to remit HST for all sales for that year. If you didn’t collect any HST, it might have to come out of your own pocket.
Do I have to charge HST on sales from outside Canada?
No, but you should be aware of your foreign tax collection rights and responsibilities. For example, you may be required to collect and remit withholding tax when selling to customers in the United States.
Handling HST Funds
What does it mean that HST is “deemed trust” money?
Deemed trust is defined as money that is collected on behalf on the government to be redeemed at a later date. In other words, it’s money you are holding that does not belong to you.
You cannot consider money held in deemed trust as income or revenue, and it cannot be used as cash flow. Even you keep it in the same account as your general revenue, be sure to track it carefully so don’t spend what isn’t yours.
How do HST credits and refunds work?
If you have eligible business expenses on which you paid HST, you can deduct them from the HST you owe and remit the balance.
For example, if you collected $10,000 in HST over the course of a year, and spent a total of $2,000 in HST on eligible business expenses for that same year, you will only have to remit $8,000 in HST.
If the balance is a negative amount, you will get that balance back in the form of an HST refund.
How can I track HST collections and credits?
If you’re good with ledgers or spreadsheets, you can simply track everything yourself. There are also many online accounting programs such as Quickbooks and Freshbooks that make HST tracking easy. Or, you can hire a professional bookkeeper to take care of it for you.
All of these options will make HST reporting easier too.
HST Reporting, Filing, and Payment
When is HST due?
This depends on when your fiscal year ends, and how often you file during the year. You can find your particular HST filing deadline and payment schedule on the CRA website.
Can I file my HST return online?
Yes, you can take care of your HST filing, HST reporting, and remit the money to CRA online.
What happens if I forget or am unable to remit my HST collections?
In a perfect world, everything would run smoothly and bills would always be paid on time.
But we live in a real world, where unforeseen things can happen that cause us to overspend and get behind on debt. If this happens to you, and you don’t have the funds to remit HST, it’s best to take the initiative and contact CRA first. They may offer modified payments or relief provisions to help.
If you wait for CRA to contact you first, you could be facing immediate demands for payment. CRA has a number of tools at its disposal to collect unpaid taxes, so it’s best to cooperate with them as much as possible.
Get Help with CRA Tax Debt
The licensed insolvency trustees at Charles Advisory Services specialize in providing customized debt solutions to Toronto and Greater Toronto Area businesses, even when CRA is knocking at the door. No matter your financial situation, we have a small business or corporate solution that’s a perfect fit.
Robert Charles, B.A., CIRP, Licensed Insolvency Trustee, is the founder of Charles Advisory Services.
For every debt problem, there’s a debt solution. Since 2006, Licensed Insolvency Trustee Robert Charles and his team have helped individuals, families, and businesses get through tough financial situations, with the personal service that only an independent licensed insolvency trustee can bring. Contact us today for a free consultation.
TIP : To avoid mixing up your money with the HST you collected, open a separate HST bank account in which to keep remittances. That way, you’ll always know the money is there at collection time, and have a clearer picture of how your business is doing.