GST/HST Compliance Guide for Canadian Businesses

The Goods and Services Tax (GST) and Harmonized Sales Tax (HST) are crucial components of Canada's tax system. Understanding compliance requirements is essential for businesses operating in Canada, as non-compliance can result in penalties, interest charges, and potential audit risks.

Understanding GST vs. HST

Before diving into compliance requirements, it's important to understand the difference between GST and HST:

GST (Goods and Services Tax)

GST is a 5% federal tax applied to most goods and services sold in Canada. It applies in provinces and territories that have not harmonized their provincial sales tax with the federal GST.

HST (Harmonized Sales Tax)

HST combines the federal GST with provincial sales tax into a single harmonized tax. The HST rates vary by province:

• Ontario: 13% (5% federal + 8% provincial)
• New Brunswick: 15% (5% federal + 10% provincial)
• Nova Scotia: 15% (5% federal + 10% provincial)
• Prince Edward Island: 15% (5% federal + 10% provincial)
• Newfoundland and Labrador: 15% (5% federal + 10% provincial)

GST/HST Registration Requirements

Understanding when you must register for GST/HST is crucial for compliance:

Mandatory Registration

You must register for GST/HST if you meet any of these criteria:

• Your gross revenues from taxable supplies exceed $30,000 in a single calendar quarter
• Your gross revenues from taxable supplies exceed $30,000 over four consecutive calendar quarters
• You provide taxi or limousine services
• You are a non-resident corporation making taxable supplies in Canada

Voluntary Registration

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

• Claim input tax credits on business purchases
• Appear more established to customers
• Prepare for future growth beyond the $30,000 threshold

GST/HST Collection and Remittance

When to Charge GST/HST

Once registered, you must charge GST/HST on:

• Most goods and services sold in Canada
• Taxable supplies made to Canadian customers
• Digital products and services in certain circumstances

GST/HST Exempt Supplies

Some supplies are exempt from GST/HST, including:

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

Zero-Rated Supplies

Zero-rated supplies are taxable at 0% and include:

• Basic groceries
• Prescription drugs
• Medical devices
• Exports
• International transportation

Filing Requirements and Deadlines

Filing Frequency

Your filing frequency depends on your annual taxable revenues:

Filing Deadlines

• Annual Filers: Within three months of fiscal year-end
• Quarterly Filers: One month after the end of the quarter
• Monthly Filers: One month after the end of the month

Input Tax Credits (ITCs)

One of the key benefits of GST/HST registration is the ability to claim Input Tax Credits:

What Qualifies for ITCs

• GST/HST paid on business purchases
• Business expenses related to taxable supplies
• Capital assets used in commercial activities
• Business meals and entertainment (limited to 50%)

ITC Documentation Requirements

To claim ITCs, you must maintain proper documentation:

• Purchases under $30: Business name, date, amount, and GST/HST amount or statement that GST/HST is included
• Purchases $30-$149.99: Above information plus supplier's name and GST/HST registration number
• Purchases $150 and over: All above information plus detailed description of goods/services and recipient information

Common GST/HST Compliance Mistakes

Special Situations and Considerations

Digital Economy and E-commerce

Recent changes affect digital businesses:

• Non-resident vendors must register if they sell digital products/services to Canadian consumers
• Platform operators may be required to collect GST/HST on behalf of vendors
• Streaming services, downloadable content, and online subscriptions are subject to GST/HST

Import/Export Considerations

• Imports: GST/HST generally applies to goods imported into Canada
• Exports: Usually zero-rated, meaning no GST/HST charged but ITCs can still be claimed
• Services: Complex rules apply depending on where services are performed and consumed

Construction Industry

The construction industry has special GST/HST rules:

• Self-supply rules for builders
• New housing rebates
• Substantial renovation rules
• Certificate of exemption requirements

Record Keeping Requirements

Proper record keeping is essential for GST/HST compliance:

Required Records

• Sales invoices and receipts
• Purchase invoices and receipts
• Bank statements and cancelled cheques
• General ledger and journal entries
• Contracts and agreements
• Import/export documentation
• Working papers and calculations

Retention Period

Records must be kept for at least 6 years from the end of the calendar year to which they relate.

Penalties and Interest

Non-compliance can result in significant financial consequences:

CRA Audits and Reviews

Understanding the audit process can help you prepare:

Common Audit Triggers

• Inconsistent reporting patterns
• High ITC claims relative to sales
• Industry-specific risk factors
• Third-party information discrepancies
• Previous compliance issues

Audit Preparation Tips

• Maintain organized, complete records
• Understand your business's GST/HST treatment
• Document business decisions and interpretations
• Cooperate fully with CRA requests
• Consider professional representation

Best Practices for GST/HST Compliance

Getting Help with GST/HST Compliance

GST/HST compliance can be complex, especially for businesses with unique circumstances. Consider professional help when:

• Starting a new business
• Expanding into new provinces or markets
• Dealing with complex transactions
• Facing compliance issues or audits
• Implementing new systems or processes

Conclusion

GST/HST compliance is a critical responsibility for Canadian businesses. While the rules can be complex, understanding the basics of registration, collection, remittance, and reporting requirements will help ensure your business remains compliant.

The key to successful GST/HST compliance is staying organized, maintaining good records, understanding the rules that apply to your specific business, and seeking professional guidance when needed. Regular reviews of your GST/HST processes and staying informed about changes to legislation will help you avoid common pitfalls and maintain good standing with the CRA.

Remember that GST/HST compliance is an ongoing responsibility, not a one-time task. Establishing good practices early and maintaining them consistently will save time, money, and stress in the long run.