GST/HST Compliance Guide for Canadian Businesses

Understanding GST and HST

The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are consumption taxes levied by the federal government and participating provinces. Understanding your obligations is crucial for maintaining compliance and avoiding costly penalties.

GST vs. HST: What's the Difference?

• GST (5%): Federal sales tax applied in Alberta, British Columbia, Manitoba, Northwest Territories, Nunavut, Quebec, Saskatchewan, and Yukon
• HST: Combined federal and provincial sales tax in participating provinces

Current HST Rates by Province

Registration Requirements

Mandatory Registration

You must register for a GST/HST account if:

• Your business provides taxable supplies in Canada
• Your total taxable revenue exceeds $30,000 in any single calendar quarter
• Your total taxable revenue exceeds $30,000 over four consecutive calendar quarters
• You're a taxi or limousine operator
• You're a non-resident who makes taxable supplies in Canada

Voluntary Registration

Even if not required, you may choose to register if:

• You want to claim input tax credits (ITCs)
• Your customers are GST/HST registrants
• You plan to exceed the $30,000 threshold soon
• You want to appear more established to clients

Registration Process

To register for GST/HST:

1. Complete Form RC1 (Request for a Business Number)
2. Choose your filing frequency (monthly, quarterly, or annually)
3. Receive your Business Number and GST/HST account number
4. Begin collecting GST/HST immediately upon registration

Collection and Charging

What's Taxable?

Most goods and services are subject to GST/HST, including:

• Most goods and services
• Imports into Canada
• Commercial real estate rentals
• Some financial services

Zero-Rated Supplies

These supplies are taxable at 0% rate:

• Basic groceries
• Prescription drugs
• Medical devices
• Exports
• Transportation services

Exempt Supplies

No GST/HST is charged on:

• Most health care services
• Educational services
• Most financial services
• Child care services
• Legal aid services
• Residential rent

Input Tax Credits (ITCs)

What Are ITCs?

ITCs allow you to recover the GST/HST you pay on business purchases. This prevents double taxation and ensures the tax is ultimately paid by the end consumer.

ITC Requirements

To claim ITCs, you must:

• Be registered for GST/HST
• Use the goods/services in commercial activities
• Have proper supporting documentation
• File your claim within four years

Documentation Requirements

For purchases under $30:

• Invoice showing vendor information
• Purchase date
• GST/HST amount or rate

For purchases $30 to $149.99:

• All of the above, plus:
• Description of goods/services
• Total amount paid

For purchases $150 and over:

• All of the above, plus:
• Recipient's name and address
• Vendor's GST/HST registration number
• Terms of payment

Filing and Remittance

Filing Frequencies

Quarterly Due Dates

• Q1 (Jan-Mar): April 30
• Q2 (Apr-Jun): July 31
• Q3 (Jul-Sep): October 31
• Q4 (Oct-Dec): January 31

Monthly Due Dates

Returns and payments are due by the end of the month following the reporting period.

Special Situations

Quick Method of Accounting

Eligible small businesses can use simplified accounting:

• Available for businesses with annual taxable sales under $400,000
• Remit a percentage of total sales including GST/HST
• Keep ITCs on capital purchases over $5,000
• Rates vary by business type and province

Place of Supply Rules

For services, GST/HST is generally charged based on where the recipient is located:

• Services to individuals: where service is performed
• Services to businesses: where recipient's business is located
• Intangible personal property: where recipient ordinarily resides

Imports and Exports

Exports: Generally zero-rated (0% GST/HST) if proper documentation is maintained

Imports: GST/HST is collected by Canada Border Services Agency at time of import

Common Compliance Issues

Registration Delays

Registering late can result in:

• Penalties for uncollected tax
• Interest on amounts owing
• Difficulty claiming ITCs retroactively

Incorrect Tax Calculations

Common errors include:

• Charging wrong rate for customer's province
• Not charging tax on taxable supplies
• Charging tax on exempt supplies
• Incorrect treatment of deposits and advances

Poor Record Keeping

Maintain records for six years including:

• All invoices issued and received
• Bank statements and cancelled cheques
• Cash register tapes
• Import/export documentation
• Contracts and agreements

Penalties and Interest

Late Filing Penalties

• First offense: 1% of balance owing
• Repeat offenses: Up to 5% of balance owing
• Minimum penalty: $25

Interest Charges

Interest is charged daily on outstanding balances at prescribed rates (currently around 5-7% annually).

Gross Negligence Penalties

50% of understated tax for willful neglect or deliberate actions.

Best Practices for Compliance

Monthly Reconciliation

• Reconcile GST/HST collected vs. remitted
• Review ITC claims for accuracy
• Verify tax rates applied to sales
• Check for missing or incorrect documentation

Technology Solutions

• Use accounting software with built-in tax calculations
• Implement automated tax rate updates
• Set up electronic filing and payment
• Use digital receipt management systems

Staff Training

Ensure staff understand:

• Which products/services are taxable
• Correct tax rates for different provinces
• Proper invoicing procedures
• Documentation requirements