Some of the most frequently asked questions I receive are about HST (harmonized sales tax). From the perspective of a small business owner, the rules and regulations around HST can sometimes be unclear and frustrating. So, I have rounded up the top 5 most commonly asked questions to help provide clarity on some HST issues and share tips for proper reporting.
Question #1: I have an HST number, but I didn’t charge any HST to my clients, does that mean I don’t need to report or pay HST?
Unfortunately if you were required to charge the HST, but did not charge it, you are still liable for the tax.
You will have to include the HST that you should have charged in the reporting period during which you should have charged the tax.
Question #2: I charged HST to my clients, but I didn’t get paid for it yet. Does that mean I don’t need to report that HST in my return?
You are liable for the HST you charged on goods or services on the day you receive the payment, or, on the day the payment is due (whichever date arrives first). Canada Revenue Agency considers the payment to be due on the date you issue an invoice, or the date specified in an agreement. So, that means even if you did not get paid for the invoice you issued to your client, in terms of HST, you still have to report it on your HST return.
Question #3: I issued an invoice to a client, but I have not been able to collect it/or I issued a credit to the client for a previous invoice and I reported the HST already in a prior period. What should I do?
If you already reported and remitted the HST for a sale on your HST return, and all or part of the amount owed to you turned into bad debt, or you issued a credit, you can recover the HST. It would be considered a tax adjustment. Include it in the reporting period when the invoice became uncollectible (turned into bad debt) or when you issued the credit. Then add it on line 108 if you are filing electronically or on line 107 if you are filing a paper HST return.
Question #4: I paid HST but have not yet paid the invoice to a vendor, does that mean I can’t claim the HST I paid?
When you calculate your HST Input Tax Credits, you can include the HST for purchases and expenses for which you have been invoiced but not yet paid. This means that you can claim any HST paid for your business on your return for the HST you owe to your vendors. Even before you pay the invoice. However, it has to be reported in the period when the invoice was issued or became payable.
Question #5: How far back can I report Input Tax Credit (ITC) not previously recorded?
You can go back as far as 4 years. How do you record it? Include any unreported tax credits on the remittance report under ITC and claim the lump sum there.
Here’s an example:
If your HST reporting period is quarterly, say January 1 to March 31, 2019, you can include unclaimed ITC for the period going back to January 1 to March 31, 2015.
If you have any questions or would like to chat about HST and effective reporting, you can reach me Susan Ivanovics, CPA at firstname.lastname@example.org